Last week, Mr Nguyen Hai Minh, Mazars' Tax Partner and Vice Chairman of EuroCham Vietnam, was featured in an article (Business Circle, page 13, April 8-14, 2019) on Vietnam Investment Review to offer his opinion on the new tax cut proposal for Vietnam’s SMEs. He explained why tax reductions might not always deliver the expected results:

“EuroCham lauds Vietnam’s tax reform, including the modernization and simplification of tax administration, adoption of international standards, and gradual reduction of CIT. Recently, the Ministry of Finance also proposed to reduce CIT to 15 per cent for micro-enterprises and 17 per cent for SMEs.

Obviously, this will impact the economy, as SMEs account for a major part of the domestic private sector. A tax reduction will help SMEs retain cash for investment and promote new company establishments, and most importantly, it will mitigate tax fraud which has been a key issue. However, the tax reduction policy needs to balance long-term benefits and the diminishing state budget.

For foreign investors, particularly European ones, taxation is certainly one factor to consider when entering a market, but it is not always a priority. Investors often care more about the investment environment, infrastructure, labour, and political stability. Currently, countries in the region consider tax cuts or tax incentives an advantage in attracting investment, while this will negatively impact their long-term development goals.

In Vietnam, EU companies are not concerned about the tax rate but tax administration and transparency and tax inspections. As mentioned in the 2019 White Book, what matter to them are the lack of guidance on comparable in transfer pricing audits, application of double tax treaties, and incompliance with non-tax regulations.”

Beside the pros and cons of the Ministry of Finance's proposal on tax reduction for SMEs, Mr. Nguyen Hai Minh also mentioned other issues concerning Tax system in Vietnam and it's lack of transparency and guidance.

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