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Vietnam Today

NA passes Law on Supporting SMEs

Released at: 20:00, 12/06/2017

NA passes Law on Supporting SMEs

Photo: VGP

Law to take effect from January 1, 2018.

by Duy Anh

With 83.5 per cent of votes in favor, the National Assembly (NA) passed the Law on Supporting Small- and Medium-sized Enterprises (SMEs) on June 12.

Over the last five years there have been programs in place supporting enterprises in general but no specific development plans for SMEs. Programs introduced have proven to be disjointed, having been designed by different ministries, and provided little real support to SMEs.

The law, with four chapters and 35 articles, regulates the principles, contents, and resources to support SMEs, as well as the responsibilities of agencies, organizations, and individuals relating to support for SMEs.

SMEs subject to the law include micro-enterprises and small- and medium-sized enterprises with an average number of employees with social insurance being less than 200 per year and meeting one of the following criteria: total investment capital of less than VND100 billion ($4.4 million) and total revenue in the previous year of less than VND300 billion ($13.2 million). Enterprises must also be in the fields of agriculture, forestry, and fisheries, industry and construction, and trade and services.

The law requires that support for SMEs must respect market rules and be in line with international treaties to which Vietnam is a signatory. Support must also be conducted transparently and openly in terms of contents, beneficiaries, procedures and processes, resources, support level, and support results, according to the law, which will take effect from January 1, 2018.

Tax evasion

While affirming the private sector is an important driving force for Vietnam’s development, only those that are profit-making will be eligible for preferential corporate tax rates under the law, Minister of Planning and Investment Nguyen Chi Dung told the NA meeting on May 23.

While SMEs account for around 97 per cent of all enterprises in Vietnam, only 49.4 per cent of all registered enterprises record a profit, according to NA Deputy Chairman Phung Quoc Hien, meaning that about half of Vietnam’s SMEs are excluded from the law.

The law stipulates that SMEs will receive a 5 per cent reduction on corporate income taxes in their first five years of operation and support in public procurement, bank loans, and land access. 

However, most SMEs incur losses in their initial years, while inequality exists between small and large enterprises and between private and State enterprises, especially in regard to credit, investment, and land use policies.

In addition, while tax obligations have significantly burdened Vietnamese enterprises, whether large or small, many have regularly recorded losses or reduced their actual profit to evade corporate income tax.

This poses questions as to whether recording a profit to earn tax breaks will be more beneficial for SMEs than recording a loss to evade tax. The matter will only be resolved, however, if loopholes within centrally managed tax invoices and tax declarations are closed.

While the Law on Supporting SMEs is a policy that will help SMEs gain better access to bank loans and receive a preferential corporate tax rate, it is also a solution in dealing with tax evasion. According to an impact assessment by economic expert Mr. Le Duy Binh, the law will help generate over $19 billion in tax revenue.  

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