Hanoi (VNS/VNA) - The Ministry of Finance (MoF) is proposing aregulation that exempts micro and small enterprises from corporate income taxfor two years after they have sufficient income subject to taxation.

The regulation would be applicable for micro and small businesses which areestablished from household firms.

This is one of the proposals the ministry has submitted to the NationalAssembly relating to tax exemption and reduction policies for micro and smallbusinesses.

Accordingly, the MoF plans to apply a corporate income tax rate of 15 percentto micro enterprises with annual revenue of less than 3 billion VND (129,000USD) and a labour force of less than 10.

A higher tax rate of 17 percent would be applicable to small enterprises withannual revenue of less than 50 billion BND (2.15 million USD) and employingless than 100 workers.

Household businesses qualified for tax exemption are required to operate for 12months from the issuance of the business registration certificate.

The tax exemption period would be calculated continuously from the first year theenterprise has taxable income. In case there is no taxable income in the firstthree years, from the first year of turnover, the tax exemption period iscounted from the fourth year.

In addition, the ministry also proposed that the preferential taxes would notbe applied for subsidiaries or associated companies of micro and small firms toprevent them from taking advantage of the policies.

The ministry said the proposal was expected to pave the way to meet the targetof having one million enterprises by 2020 by promoting the development of thebusiness community and establishment of household businesses.

Currently, the corporate income tax applied to all businesses is 20 percent.With the proposal of tax at 15 and 17 percent, micro and small firms would seetheir tax bills drop by 3 to 5 percent.

According to the MoF’s calculations, the tax exemption could reduce the Statebudget revenue by 9.2 trillion VND per year, putting more pressure on theGovernment’s State budget balance in the short term.

However, the regulation is expected to have big effects on the promotion ofproduction and business of micro and small firms, creating a favourablebusiness environment. It would also help improve transparency andadministrative reform. In the long-term, it would facilitate micro and smallcompanies to have accumulation for reinvestment and contributing more to theState budget.

To cover the impact of the regulation in the short term, the MoF is expected towork with other Government agencies in implementing the tax laws and preventingtax losses.

In recent years, many agencies proposed policies to encourage householdbusinesses to establish small firms. According to the Vietnam Chamber ofCommerce and Industry, the country now has around five million householdbusinesses.

By the end of 2018, Vietnam had around 715,000 businesses. Of them, thesmall-and-medium sized enterprises accounted for 97 percent of the total.-VNS/VNA