Over 6 months implementing the amended and supplemented tax laws, new regulations on tax incentives have come to life and promoted positive effects on many aspects. However, during the implementation process, some issues need to be considered. In addition to many businesses enjoying higher tax incentives than before, there are also some cases of reduced incentives due to the implementation of a common tax ground for domestic enterprises and foreign invested enterprises.
In 2003, the XIth National Assembly, the 3rd session adopted 3 Tax Laws, which are the Law on amendments and supplements to some articles of the VAT Law; Law on CIT and Law on amending and supplementing some articles of the Law on Special Consumption Tax. At the same time, the Government also issued documents guiding the implementation and direction for timely implementation when the validity of tax laws took effect from the beginning of 2004.
The amended and supplemented tax laws have created a new step in administrative reform in the tax field, promoting healthy competition and creating a more favorable and attractive investment environment such as: increase preferential rates and application time limits, tax reduction time for many domestic production business; expand the scope of application of tax incentives for foreign investors, especially agreed on tax incentives for domestic and foreign invested enterprises; eliminate discrimination and create a common legal ground for domestic and foreign investment.
In order to create a better investment environment, it is necessary to continue to handle obstacles, ensure the application of uniform tax preferential policies for domestic and foreign investment and also there must be a clear roadmap and specific steps. Due to the characteristics of attracting and using foreign investment, the tax incentives for industrial zone, export processing zones and foreign investment projects need to be kept at a level not lower than before.
Implementing the above orientation, measures to handle some problems when implementing the Law on VAT and CIT should be implemented as follows:
1. Regarding tax incentives for investment projects in industrial zone and export processing zones
Value Added Tax:
According to the provisions of Article 7 of Decree No. 158/2003 / ND-CP guiding the implementation of the Law amending and supplementing a number of articles of the Value Added Tax Law, goods and services sold for export processing enterprises and export processing zones including: insurance, banking, post and telecommunications, consulting, auditing, accounting, transport, loading and unloading, leasing houses, offices, warehouses and drainage services for employees, petrol and oil sold to transport vehicles shall be subject to value added tax at the prescribed tax rates applicable to consumers in Vietnam.
Recently, export processing enterprises have reported that by stipulating service provision for export processing zones as subject to added value it increases the production and business costs to export processing enterprises. , leading to reduced competitiveness of exported goods. So what is the bottom of this problem and how to handle it?
Research shows that in the past, under the provisions of Article 8 of the VAT Law of 1997, the 0% tax rate does not apply to export services. However, in Resolution No. 90/1999 / NQ-UBTVQH10 of September 3, 1999 and Resolution No. 240/2000 / NQ-UBTVQH10 of October 27, 2000 of the Standing Committee of the National Assembly, there is a 0% tax rate regulation. for export cases as prescribed by the Government.
Pursuant to the Law on Value Added Tax in 1997 and the two Resolutions mentioned above, on December 31, 2000, the Government issued Decree No. 79/2000 / ND-CP, of which Clause 22 Article 4 stipulates Subjects not subject to value-added tax include: “Goods and services directly supply to international transport and consumers outside Vietnam, except for repairing transport machinery and equipment. for foreign countries and labor export services ”. Then, on December 29, 2000, the Ministry of Finance issued Circular 122/2000 / TT-BTC, of which point 22, Section II, one is not subject to value-added tax, including provisions including services provided to consumers outside Vietnam, export processing enterprises. On January 23, 2002, the Ministry of Finance also issued Official Letter No. 757 / TC-TCT guiding the value added tax on goods sold to export processing enterprises which regulate sales units to calculate tax rates. value added when sold as follows:
– Goods and services purchased and consumed by export-processing enterprises in the domestic market (outside export processing zones and export processing enterprises) such as petrol and oil for motorbikes, automobiles, food, meeting and conference leasing. , House…
– Goods and services provided for personal needs other than employees working for export processing enterprises (regardless of enterprises or individuals signing purchase contracts) such as meals, electricity and water. , telephone, petroleum, personal consumer goods, apartment rental, houses …
(Therefore, before 2004 (before the Government Decree 158 took effect) enterprises in export processing zones had to pay value added tax on some services provided and consumed in domestic market or for consumer demand in the domestic market or for personal needs of workers working for export processing enterprises. This provision is entirely consistent with the Law on Value Added Tax in 1997, stipulating that goods and services used for production and business and consumption in Vietnam are subjected to value added tax and suitable to Article 40. Regulations on industrial zone, export processing zones and hi-tech zone promulgated together with the Government’s Decree No. 36 / CP of April 23, 1997. Thus, Decree No. 158 of the Government stipulates that service provision for export processing zones is subject to value-added tax which inherits previous regulations and at the same time ensures fairness between domestic enterprises and export processing zone enterprises, creating conditions for domestic suppliers to deduct input value-added tax
However, in order to continue facilitating export processing enterprises and export processing zone enterprises to develop production and business, and to boost investment attraction in export processing zones, promoting exports and applying Point 3, Article 1 of the Law amending and supplementing a number of articles of the Law on Value Added Tax (2003) stipulates a 0% tax rate applicable to both exported goods and services, and Government Decree No. 158 needs amended in the direction of considering the service provided directly to export processing enterprises, export processing zone enterprises as export services, allow some cases of buying, selling, exchanging services between domestic enterprises and processing enterprises. The VAT rate of 0% is applied.
Conditions for services provided to enterprises in export processing zones and export processing enterprises shall be subject to 0% export tax and shall be deducted the value added tax already paid at the input as follows: having service provision contracts. , pay via bank and have value-added invoices.
Thus, services provided to export processing enterprises and export processing zone enterprises but consumed in the domestic market and services provided for individual needs of workers working for export processing enterprises, Export processing zone enterprises still have to pay value added tax at the tax rates prescribed for consumer services in Vietnam.
Company Income Tax (CIT):
Preferential tax rates of 10%, 15%, 20% and previous tax exemption and reduction periods are prescribed for investment projects in industrial zone and export processing zones regardless of investment areas. Under Decree 164 of the Government guiding the implementation of the Law on Enterprise Income Tax, the conditions for applying preferential tax rates of 10%, 15%, 20% and tax exemption and reduction periods for investment projects Industrial parks and export processing zones are those areas which must be located in areas with difficult and particularly difficult socio-economic conditions. This regulation aims to encourage businesses to invest in remote and difficult areas to promote economic development in these places. But up to now, most industrial parks and export processing zones are concentrated in cities, towns and plains, not in areas with difficult and particularly difficult socio-economic conditions. So if under Decree 164, new projects invested in these zones will not be entitled to the same incentives as before.
Considering the coming years, industrial parks and export processing zones are still developing in cities, towns, and plains, there are no conditions for development to other disadvantaged areas, so it is necessary to do so keep the conditions for application of preferential tax rates and tax exemption and reduction periods for projects invested in industrial parks and export processing zones as before, which means that abandoning the conditions for investment encouragement areas
2. Regarding tax incentives for projects on the list of projects eligible for special investment encouragement
Special investment encouragement project:
Previously, in the field of encouraging foreign investment, the list of projects to encourage investment was divided into two levels: investment encouragement and special investment encouragement. For domestic investment promotion, only one level is encouraging investment. The process of drafting Decree 164 of the Government through discussion shows that:
The portfolio of special projects to encourage foreign investment is very wide (16 sectors, industries and fields), so it has not shown the “special” nature of investment encouragement; Meanwhile, domestic investment does not have a special investment incentive list, although many projects have a rigorous, comprehensive, economic impact assessment, evaluation and implementation process. a large society, decided separately by the Prime Minister (like the Son La power plant project). So to meet at once the unified and equal requirements between domestic enterprises and foreign invested enterprises on investment and business, and still be able to handle special cases. arising in the practice of Article 37 of Decree 164, the Government assigns the right to the Prime Minister to decide on tax incentives for projects which are particularly encouraged for domestic and foreign investment.
However, in order to ensure tax incentives for special projects encouraging foreign investment not lower than the previous one, there should be clearer regulations, such as encouraging investment projects receive 10% tax rate applied for 15 years and tax exemption for 4 years and 50% tax reduction for the next 9 years. The list of special investment encouragement projects is stipulated by the Government in different periods.
Investment projects in the field of medical examination and treatment, education and training, scientific research:
Previously, in Decree 24/2000 / ND-CP and Decree 27/2003 / ND-CP, investment projects in the field of medical examination and treatment, education and training, scientific research, although not in the list The project item is especially encouraged for foreign investment, but still enjoy the preferential tax rate of 10% and 4-year tax exemption, a 50% tax reduction for the next 4 years. Domestic investment enterprises are not entitled to high incentives as mentioned above.
Due to the requirement for unified tax incentives for foreign investment and domestic investment, Decree 164 stipulates that the mentioned projects are classified in the list of industries and sectors entitled to investment incentives. If the project is not in the area where investment is encouraged, it is only entitled to a preferential tax rate of 20%, 2-year tax exemption and a 50% tax reduction for the next 5 years. This provision is reasonable because investment projects in medical examination and treatment, education and training, scientific research for domestic investment are quite a lot. Therefore, if open tax incentives for this sector similar tp foreign investment, the offer will be rampant and not effective.
In order to ensure that incentives for foreign investment are not lower than before, it is necessary to allow foreign investment projects in this sector to receive incentives like special investment promotion projects.
3. About the list of industries, areas to encourage investment
Category A – Lines of investment encouragement:
In order to keep tax incentives for projects investing in industrial parks and export processing zones as before (ie not associated with conditions for investment promotion areas) and investment projects in the high-tech Zone. The higher is entitled to preferential treatment under the Prime Minister’s own regulations (Decision No. 53/2004 / QD-TTg of April 5, 2004), requiring the amendment of the contents of the text of Decree No. 164 which must be ensured synchronize and avoid conflict with other regulations, so these projects must be removed from List A – list of industries and sectors eligible for investment incentives in Decree 164.
In Decree 164, BOT, BTO and BT projects are included in the investment incentive category of List A. However, to keep the preferential level for foreign investment projects is not lower than before, it is necessary to allow BOT, BTO and BT projects to receive incentives like special investment encouragement projects. Therefore, to ensure consistency and avoid conflict with other regulations, it is necessary to remove BOT, BTO and BT projects from the list A.
List B – Investment promotion areas and List C – areas with special investment encouragement:
Previously, the location of investment encouragement and special investment encouragement areas had distinctions between foreign invested enterprises and domestic enterprises. For example, some cities and towns such as Viet Tri, Thai Nguyen, Da Lat, Bac Giang are encouraged to invest in foreign investment, but not in special areas to encourage investment. with domestic investment because the majority of domestic enterprises has been doing business in that area.
In order to come to a consensus on the list of investment-encouraging area , to apply for both foreign investment and domestic investment, when developing the Decree No. 164 of ministries and branches, it is said that if taking the encouraged- investing area in foreign-invested enterprises (small number of enterprises) that apply to domestic enterprises (with a large number of enterprises) is not appropriate (rampant incentives, ineffective). In fact, very few foreign invested enterprises invest in the above areas. Therefore, Decree 164 stipulates a list of investment incentives for domestic enterprises that applies to foreign invested enterprises.
According to this regulation, some localities believe that there’s less preferential treatment than before, and not create conditions for localities to attract foreign investment, should handle in the direction of the list of encouraged investment areas issued together with the Decree 164 will apply to domestic investment, while foreign investment will apply the investment incentive list as stipulated in Decree 24/2003 / ND-CP.
In addition, when the Decree 164 was not issued, there was no decision to separate the province, so the amendment of the list of areas to encourage investment this time needs to add 3 provinces of Dien Bien, Dak Nong and Hau Giang to be consistent with the establishment of 3 new provinces under the Resolution of the National Assembly.
4. Tax rates used as a basis for determining payable tax amounts for investment projects of scale expansion
Article 18 of the Law on Enterprise Income Tax stipulates that investment projects which are scaled up shall only be entitled to incentives for tax exemption and reduction, not regulated for preferential tax rates. However, Article 31 of the Law stipulates a non-retroactive principle for licensed projects before January 1, 2001. In cases where these projects carry out investment in scale expansion, the tax rates used as a basis for determining the payable tax amounts for this investment have not been clearly defined. It is thought that in the coming time, there should be specific guidelines and based on the following principles:
In order to ensure the principle of non-retroactivity, for enterprises established before January 1, 2004, there are investment projects to expand their scale if they still meet the preferential conditions prescribed in the Investment License and certificate of investment incentives, the tax rate used as a basis for determining the payable tax amount is the tax rate applied by the business establishment.
For other scaled investment cases, the applicable corporate income tax rate is 28%, other tax exemptions for this investment project are implemented in accordance with Article 38 of Decree 164 of Government.
– Tax exemption and reduction year: new enterprises can be established at any time of the year. Therefore, in order to ensure that enterprises are entitled to the full year of tax exemption and reduction, it is necessary to clearly guide the year of tax exemption and reduction as the full 12-month year.
Above are some opinions exchanging measures to handle arising problems when implementing the Law on Value Added Tax, amended and supplemented corporate income tax. Look forward to the comments of many readers.
Assoc. Prof. Ph.D Bạch Thị Minh Huyền
(Source: “Tài chính” Journal)