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Local corporations pay higher corporate income tax

Many local enterprises are concerned about paying higher corporate income tax according to regulations on the deductibility of loan interest under Decree 20, in effect from May 1, 2017.
Local corporations pay higher corporate income tax ảnh 1Local enterprises expressed concerned over one regulation that has led to higher corporate income tax rates. (Source: vneconomy.vn)

Hanoi (VNS/VNA) - Many local enterprises areconcerned about paying higher corporate income tax according to regulations onthe deductibility of loan interest under Decree 20, in effect from May 1, 2017.

Large enterprises such as EVN, Vinacomin, Vicem, Lilama and someprivate enterprises have sent a request to the Ministry of Finance (MoF) tochange the regulation on deductibility of loan interest,reported vneconomy.vn.

In a letter sent to the MoF, EVN said re-lending activitieswith its members are implemented in accordance with Government regulations andmarket rules.

Limiting expenses for loan interest according todeductibility would make investment activities more difficult for EVN and itsmembers, especially power generation companies, to develop power projects.

Higher demand for electricity in the coming months isexpected to lead to an increase in EVN’s investment in new projects. However,EVN’s members do not have enough capital to meet investment demand, so theyneed to use domestic and foreign loans.

Under the regulation, EVN Genco 1 and EVN Genco 3 would seetheir corporate income tax bills increase by 339 billion VND and 216 billionVND, respectively. Meanwhile, EVN would pay an additional 762 billion.

Some other large enterprises expect to pay more as well.Vinacomin (TKV) would pay an additional 410 billion VND, Masan Group would add 111billion VND to its tax bill and Novaland would add 185 billion VND.

According to Decree 20/2017/ND-CP, the deductibility of loaninterest is capped at 20 percent of earnings before interest, tax, depreciationand amortisation (EBITDA). Expenses for loan interest exceeding 20 percent aretaxable.

Vietnamese businesses, especially those investing in keyindustries, end up paying higher income taxes because they borrow huge amountsof capital.

Lenders must pay taxes on income from the loan interest,while borrowers pay for exceeding the borrowing costs ceiling.

The regulation has also made corporations limit theirinvestment in business development in some fields that need to encouragedevelopment.

Capping the interest rate ceiling for loans impacts lendingand borrowing activities that are common in state corporations and privatefirms.-VNS/VNA
VNA
#corporate income tax #local enterprises #loan interest #Ministry of Finance #power generation company #EVN #foreign loans #Vietnamplus #Vietnam News #Vietnam News Agency

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