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Solutions needed to fill 'gap' in tax policy

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Mr. Bui Tuan Minh, Tax Partner at Deloitte Vietnam, shares his views with VET on a draft law with a provision on the transition of CIT incentives.

The Ministry of Finance recently issued a draft law amending tax laws, including an important amendment relating to the transition of corporate income tax (CIT) incentives. What is your opinion on this?

The Ministry of Finance has proposed to clarify the provision of incentive transition for cases that were previously not entitled to incentives under CIT regulations but satisfy the conditions under Law No. 71/2014/QH13, so that these cases are entitled to the transition in enjoying the incentives for the remaining time in the 2019 tax period (the effective date of the draft).

I think this amendment is meant to remove the obstacles created by a lack of full guidance on the beneficiaries of incentive transition under Decree No. 12/2015/ND-CP guiding Law No. 71. However, the stipulation of an incentive transition time from the 2019 tax period, instead of the 2015 tax period (the effective date of Law No. 71), may create a “gap” in the policy and may not guarantee the principle of fair treatment for enterprises.

Can you explain more about the lack of full guidance on incentive transition beneficiaries in Decree No. 12?

I have commented on multiple media outlets on the matter of CIT incentives. Specifically, Law No. 71 introduced the principle of incentive transition. In cases where an enterprise satisfies new incentive conditions, it shall have the right to choose to enjoy preferential tax rates and tax exemptions and deductions for the remaining period.

Law No. 71 became effective on January 1, 2015. Under the aforementioned principle, investment projects that were licensed before January 1, 2015 and that satisfy incentive conditions (under sectors or locations) from that day have the right to choose to enjoy tax incentives (preferential tax rates and tax exemptions and deductions) for the remaining time, starting from the 2015 tax period.

However, Decree No. 12 only guides the incentive transition for investment projects that were not in encouraged locations but from January 1, 2015 are in encouraged locations. Decree No. 12 does not guide the incentive transition for investment projects that were not part of encouraged sectors but from January 1, 2015 did belong to encouraged sectors. Typical examples are projects with minimum investment of VND12 trillion ($528.8 million), projects manufacturing preferential support industry products, and income from enterprises engaged in cultivation, breeding and processing not in encouraged investment locations.

I would like to illustrate by way of example. Two enterprises, A and B, both have investment projects established in 2012. The project of Enterprise A was established in an industrial zone that is not in a favorable socioeconomic conditional area, while the project of Enterprise B is a project manufacturing preferential support industry products. Both projects were not entitled to CIT incentives under regulations at the time of establishment, but from January 1, 2015 they satisfied CIT incentive conditions under Law No. 71. However, Decree No. 12 only guides that the project of Enterprise A is entitled to the CIT incentives (under the location criterion) for the remaining time, starting from the 2015 tax period. It does not provide guidance as to whether the project of Enterprise B is entitled to CIT incentives (under the sector criteria) for the remaining time, from the 2015 tax period.

Are there other inappropriate points regarding the incentive transition time in the draft?

The proposal in the draft generally creates a “gap” in policy for four years (from January 1, 2015 to December 31, 2018) for projects satisfying incentive conditions under the sector criteria from January 1, 2015 but does not yet have specific guidance on incentive application in Decree No. 12. From a legal perspective, such a proposal may not be appropriate with the law on the promulgation of legal documents, as regulations stipulated in Law No. 71 are not subject to suspension or expiration.

In my opinion, this “gap” may create inequality in cases of encouraged location (which was allowed for incentive transition from the 2015 tax period), which might violate the principle of equal treatment granted by the State to investors, as stipulated in the Law on Investment. Precisely, according to the Clause 1, Article 13, of the Law on Investment 2014: “Where a new law that provides more favorable investment incentives than those currently enjoyed by investors is promulgated, investors shall enjoy the new incentives for the remaining period of the incentive enjoyment of the project.”

What is needed to fill the “gap” in this policy?

In order to ensure uniformity in the implementation of the CIT incentive transition policy, as well as to create a fair environment for all enterprises and align with the objectives of tax policy reform towards transparency, clarity, and ease of understanding and implementation in the spirit of the tax system reform strategy from 2011 to 2020, in my opinion the government and the Ministry of Finance should consider the following options.

Option 1: It is not necessary to amend and supplement the incentive transition provision in the draft amended law, but instead supplement the incentive transition for investment projects belonging to encouraged sectors (under the regulation for Law No. 71) in the guiding documents thereof (for example, Decree No. 12), which is applied from the 2015 tax period.

Option 2: In cases where such content is kept as is under the current draft amended law, it is proposed that there be a provision for the retroactive application of incentive transition for cases that were previously not entitled to incentives under the criteria of encouraged sectors prior to Law No. 71 but these cases satisfy the conditions of encouraged sectors under Law No. 71 from January 1, 2015, and should be entitled to incentives for the remaining time from the 2015 tax period.



Source: VN Economic Times 

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