FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

---------***--------

RESEARCH ESSAY

Subject: Taxation and Tax System in Vietnam

VIETNAM LAW ON CORPORATE INCOME TAX

Name Student ID
Triệu Thạnh Khang 1801015365
Trần Nhật Minh 1801015503
Nguyễn Trần Đức Anh 1801015116
Trần Thị Hương Thư 1501015544
Class: K57CLC3
Lecturer: Trần Nguyên Chất

Ho Chi Minh City, 31 tháng 01 năm 2021

 CONTENT

ABSTRACT.............................................................................................................1

BODY....................................................................................................................... 1

I. OVERVIEW..................................................................................................1

1. Vietnam’s Taxes on Business...................................................................1

2. Definition of Corporate Income Tax (CIT)..............................................2

3. Tax  rates..................................................................................................3

4. Tax incentives..........................................................................................4

II. VIET NAM’S LAW ON CIT......................................................................5

1. Summary of CIT Law’s Articles..............................................................5

2. VietNam’s Foreign contractor tax under CIT.........................................10

3. Comparison between CIT in Vietnam and China ..................................12

III. CASE STUDY

The Effect and Result of a CIT cut to Vietnam’s economy..........................14

1. Vietnam’s proposals to reduce CIT throughout the year........................14

2. The effect of a CIT cut on Vietnam's economy......................................16

CONCLUSION......................................................................................................18

REFERENCES .....................................................................................................18
ABSTRACT

This paper is a review of Law applied for Corporate Income Tax in Vietnam,
stating some outstanding points of this Law as well as its application in reality,
starting with Vietnam's Taxes on Business in general. This paper also pays attention
to the analysis of Foreign Contractors Tax, concentrating in the form of it subjecting
to the Corporate Income Tax. For a more objective perspective, this also consists of
the comparison between the law of Foreign Contractors Tax subjecting to Corporate
Income Tax in Vietnam and the country of China. The results show that Law
applied exerts significantly beneficial impacts on the Vietnamese economy in
general. However, this Law still faces several problems and limitations in
comparison with this law applied in other countries in the world, so that measures
should be taken to make progress. Furthermore, a case study is also included in this
paper for a better understanding about the way this law has been working.

BODY
I. OVERVIEW
1. Vietnam’s Taxes on Business

Tax is a compulsory monetary contribution to the state’s budget imposed by the

government, paid by individuals or organizations for public goods and services. In
other words, it is a compulsory transfer of money from the private sector to the
public sector (government) to finance public goods and services. Tax may have 3
distinct characteristics. It is compulsory and stated by law. It is highly legislative,
which means that it is issued by the highest authority or law making organization as
The Parliament in Vietnam. Finally, it is different from other forms of money
transfer to the budget such as notary fees, charges, highway tolls, traffic fines...

Tax has three main functions. Tax creates a major and regular source of revenue
to the government’s budget to finance the government’s expenditure or spending.
Tax policy can be used as a tool to regulate the economy or generate impacts on

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other countries, by which the government regulates the behaviour of enterprises and
individuals, thereby orienting production and consumption. Economic growth will
be promoted by a fair tax policy, whereas an unfair tax system will limit companies
and distort the consumption behavior of society. Thirdly, Tax is aimed to moderate
and redistribute the society’s income in the purpose of equity.

Taxation system is commonly classified into two segments based on the

transfer of tax burden namely direct tax and indirect tax. A direct tax is a form of
tax which is imposed directly on taxpayers who bear the tax burden. Tax burden
cannot be shifted to other persons. On the other hand, an indirect tax is when the
government collects tax from intermediaries. Tax payer is not an ultimate bearer of
economic burden due to the fact that the taxpayer would transfer tax burden to the
others. Differences in the methods of collection, the revenue base and the transition
of the economic tax burden are triggered by differences in the impact on the
economy of indirect and direct taxes. The right mix of direct and indirect taxes
would optimize the beneficial effect of taxes on the economy.

To keep pace with the economic growth of each time, Vietnam's tax system has
been constantly reformed. The regulations on different kinds of tax have been step-
by-step issued, amended to govern many revenue sources. Up to now, the tax
system of Vietnam includes: corporate income tax (CIT), personal income tax
(PIT), agricultural land-use tax, land and housing tax, value added tax (VAT),
excise tax, import-export duties,  tax on natural resources, tax on environmental
protection and registration tax. The tax has been the largest source of revenue for
Vietnam's state budget. Tax has contributed for more than 4/5 of state budget
revenue, timely meeting the requirements on financial resources to maintain the
operation of the state apparatus and capital accumulation for the development
investment.

This research paper focuses on the concept of corporate income tax and foreign
contractor tax (FCT), which are the usually seen tax applied on businesses and the
impact of them on Vietnam’s whole economy.

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2. Definition of Corporate Income Tax (CIT)

The corporate income tax is one of the important taxes in the tax system of
countries. Its strain ranges from developed to developing countries. In Vietnam, the
corporate income tax is a most significant tax and its allocation to the state budget is
higher than other taxes. In countries, the name of this tax law may be different as
company income tax law, corporate income tax law, corporate tax law, profit tax,
etc., but their nature is similar. The country regulates this tax in a separate law, or
some other countries combined corporate income tax and personal income tax in a
law, because they argue that the two types of income taxes are closely related to
each other, so regulates them in a tax law will more accessible.

Currently, there is no specific concept of corporate income tax (CIT). However,

based on regulations such as corporate income tax law, decrees, and implementing
circulars, we can understand CIT as follows: CIT is a direct tax on taxable income
of an enterprise including income from production and trading of goods and
services and other income as prescribed by law. Corporate income taxes are
imposed by governments on business profits, earnings or taxable income.
Corporates use everything in the tax code to lower the cost of payable taxes by
reducing their taxable incomes.

3. Tax  rates

As we know, the role of businesses in the economy is very important. On the

one hand, the macro-economic indicators are mainly contributed by businesses, on
the other hand businesses contribute to create jobs, raise incomes for workers, and
enhance residential life. Derived from the important role of businesses in the
economy, to create favorable conditions for businesses and create a healthy
competitive environment, the countries always have policies to support businesses,
including the tax policy. The recent trend of the countries is decreasing the general
tax rate of corporate income tax to create the appeal and competitiveness for
businesses, in order to stimulate expansion investment of businesses.

In most sectors, the normal CIT rate is 25 percent for both domestic and

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foreign-invested companies (FIEs). In an effort to attract more foreign direct
investments, boost investment in Vietnamese businesses and to support struggling
local enterprises, Vietnamese lawmakers have recently approved the government’s
proposal to reduce the existing CIT levels from 25% to 22% (the new rate is
expected to take effect starting January 1, 2014). 

The National Assembly would also slash CIT rates by 5 percent (to 20 percent)
and 15 percent (to 10 percent) for small and medium-sized businesses and
developers of low-cost housing.

This new tax rate will give Vietnam an edge over other neighboring countries
like China (25%), Indonesia (25%) and Myanmar, the new rising star (30 percent).
However, other countries such as Thailand do offer a lower 20 percent CIT
threshold and even more lucrative benefits and tax cuts for newcomers, having said
that. 

4. Tax incentives

New investment projects will earn tax incentives based on regulated incentive
markets, incentive positions and the scale of the project. Company expansion
projects (including expansion projects approved or initiated since the 2009-2013
period that have not historically been entitled to any CIT incentives) that satisfy
such requirements are now entitled to the 2015 CIT incentives. Projects formed as a
result of such acquisitions or reorganisations do not include new construction
projects and company expansion projects:

− Education, health care, sport/culture, high-technology, environmental

conservation, scientific research and technology development,
infrastructural development, manufacturing of agricultural and aquatic
goods, software production and renewable energy are sectors that are
promoted by the Vietnamese Government

− New development-prioritized investment or growth programs involved in

the manufacture of agricultural goods are entitled to CIT incentives

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 − Locations which are encouraged include qualifying economic and high-tech
zones, certain industrial zones and difficult socio-economic areas

− Large-scale industrial ventures (excluding those related to the manufacture

of goods subject to special sales tax or exploiting mineral resources) are
eligible for CIT incentives. 

The two common preferential rates of 10% and 20% are valid for a term of 15
years and 10 years, respectively, beginning from the launch of incentive-generating
operations. It is possible to expand the length of the implementation of the
preferential tax rate in some situations. Instead, businesses with programs
previously entitled to the preferential CIT rate of 20 percent now receive a rate of
17 percent from 1 January 2016. After the preferential rate expires, the CIT rate
reverts to the normal rate. In some situations, the preferential rate of 15 percent
would continue for the entire project life. Certain socialized sectors (e.g. education,
health) enjoy the 10% rate for the entire life of the project.

It is also possible for taxpayers to be eligible for tax holidays and discounts.
The holidays take the form of an exemption from the CIT for a certain time starting
shortly after the corporation first earns money from the incentive operations,
preceded by a period during which tax is imposed at 50% of the rate in effect.
However, where an enterprise has not derived taxable profits within 3 years of the
commencement of generating revenue from the incentivised activities, the tax
holiday/tax reduction will start from the fourth year of operation. Eligibility
requirements for these holidays and reductions are laid down in the legislation of
the CIT. 

For businesses involved in manufacturing, building and transportation

operations that hire several female workers or ethnic minorities, additional tax
deductions may be eligible. Small and medium businesses ('SMEs') will be given
such benefits, including a lower CIT limit, from 1 January 2018 onwards (various
criteria apply in order to be considered an SME). The tax benefits eligible for
investment in the supported industries do not extend to other, narrowly specified

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profits generated by a business (with the exception of income specifically
attributable to reward operations such as the disposal of scrap).

II. VIET NAM’S LAW ON CIT:

1. Summary of CIT Law’s Articles:

There are 20 articles regulating the Corporation Income Tax in total, which are
divided into 4 chapters namely General Provisions, Basis and Method of Tax
Assessment, Corporate Income Tax Incentives and Implementing Provisions. 

These articles can be summarized into 11 main points:

Taxpayers

Organizations engaged in production and trading of goods and services with

taxable income, hereinafter referred to as an enterprise, consisting of 5 groups.

Foreign organizations that do business in Vietnam not under the Investment

Law, the Enterprise Law or have income arising in Vietnam, if capital transfer
activities are conducted. In case the payments of corporate income tax are made,
they shall be paid under the Finance Ministry's separate guidance, and there are,
then pay enterprise income tax.

Taxable income

Taxable income includes income from production, trade in goods, services and
other income.

Other income includes:

− Income from capital transfer or the transfer of capital contribution’s right

− Income from transfer of investment projects, real estate, rights of

exploration and exploitation of minerals

− Income from the right to use, own property, including intellectual property

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 rights

− Income from deposit interest, loan interest, foreign currency sale

− Unused accruals that are not used or are not used up according to the
appropriation term

− Bad debts written off which are now recovered

− Payable debts for unidentifiable creditors

− Missing earnings from business previous years which are just discovered

− The difference between the collection of fines and compensation due to

breach of economic contracts, and the contract bonuses

− Donation in cash or in kind received

− The difference due to revaluation of assets

− Taxable income generated in Vietnam by foreign enterprises, which do not

include income from services outside the territory of Vietnam

− The profits or losses from overseas investment projects which are not
deducted in the domestic loss or profit arisen.

Tax exempt income

Incomes from some special production fields for the development purposes of
some key sectors of Vietnam, those generated in regions with extremely difficult
socio-economic conditions,... 

Grants received to be used for educational activities, scientific research, culture

and arts, charity, humanitarian and other social activities in Vietnam.

Tax assessment period and Basis for tax assessment

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 Tax period: 

− The assessment period is determined according to the calendar year or

fiscal year, unless the income is generated many times with a foreign
enterprise

− The assessment period for each time the income is generated is applicable
to foreign enterprises.

Tax bases:

− Based on taxed income and tax rate.

Determination of taxable income

Taxable income in a tax period is determined by taxable income minus exempt

income and losses carried forward from previous years.

Taxable income equivalent to turnover minus deductible expenditure on

manufacturing and business operations plus other income, including income earned
outside Vietnam.

The loss of income generated from transfer of real property is offset against the
profit of production and business activities in the assessment period if the loss is
made.

Turnover

The turnover for calculating taxable income is the total amount of goods,
processing fees or service charges, irrespective of the collection or not.

The way taxable turnover is determined in a number of cases, ranging from

whether the tax payment method is according to the direct method or not to the
goods sold at the right price to receive commission.

Deductible expenses and non-deductible expenses when determining

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taxable income

Deductible expenses:

− Actual expenses for a number of special political or social purposes

− Expenses for a number of special products in some particular situations.

Non-deductible:

− Expenses of business management allocated by foreign enterprises to the

Vietnamese establishment in excess of the rate according to CT

− Expenses in excess as prescribed by law on provisioning

− Depreciation in some particular cases, ranging from the expenses which are
not in accordance with regulations and law to those of fixed assets not used
for production and business purposes

− Cars with particular features and prices

− Foreign exchange differences due to reassessment of liabilities payable in

the monetary item denominated in foreign currencies 

− Expenditure for salaries and wages of some regulated business entities,

with a minimum amount in some cases, and business activities 

− The excess of the social insurance and health insurance premium Tax late
payment interest

− Reward for initiatives and improvements in the absence of an acceptance

test board.

Tax rate

The corporate income tax rate is 20%.

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 This tax rate could be higher when being applied in corporations trading in
some special fields, such as: 

− 32% to 50% for oil and gas and other rare and precious resources exploited

− 50% for platinum, gold, tin, wolfram, antimony, precious stones, and rare
earth mines

− 40% for mines with 70% or more of the allocated area in areas with
extremely difficult socio-economic condition.

Method of assessing tax

The payable enterprise income tax amount in an assessment period is taxable

income multiplied by the tax rate.

In case an enterprise has paid income tax on income generated abroad, the paid
income tax amount may be subtracted but must not exceed the payable corporate
income tax amount according to the provisions of the Law on Corporate Income
Tax.

For enterprises specified in the Law on Enterprise Income Tax, the payable
enterprise income tax amount is calculated as a percentage of the turnover from the
sale of goods and services in Vietnam.

Corporate Income Tax Incentives 

Preferential tax rates:

− A preferential tax of 10% for a period of 15 years or forever, which is

applied to some specific cases with particular conditions.

Tax exemption and reduction:

− Tax exemption for 4 years, 50% tax reduction for the next 9 years for
income from new investment projects in difficult or extremely difficult

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 socio-economic areas and CIT from new investment projects to produce
supportive technology products with development priority

− Tax exemption for 4 years, 50% reduction in the next 5 years for income
from investment projects in the field of socialization

− Tax exemption for 2 years, reduction of 50% in the next 4 years for income
from new projects from industrial zones; Except for industrial zones with
favorable socio-economic areas.

− Tax exemption or reduction period is counted from the first year of taxable
income from new investment projects eligible for tax incentives

− Tax for Enterprises are enjoying tax incentives if they want to expand
production scale; Capacity enhancement and technological innovation with
some requirements must be satisfied

− Tax reduction with other special cases.

Implementing Provisions

It includes the regulation about conditions for applicability of tax incentives, the
effectiveness and implementing guidelines.

2. Vietnam’s Foreign contractor tax under CIT:

Definition

Foreign Contractor Tax (FCT) is a tax imposed on foreign organizations and

individuals (not operating under Vietnamese law) that earn income from the
provision of services or services associated with goods in Vietnam. FCT is not a
separate tax. Instead, it consists of a combination of parts from Value Added Tax
('VAT'), CIT and Personal Income Tax ('PIT') on foreign individuals' incomes.

Legal basis 

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 FCT with regard to different kinds of tax (VAT, CIT,...) will be under distinct
legal basis. For FCT under CIT legal basis, it consists of:

− Law on Corporate Income Tax No. 14/2008 / QH12 dated June 3, 2008

− Law on Corporate Income Tax No. 32/2013 / QH13 dated June 19, 2013
(additional)

− Decree No. 218/2013 / ND-CP dated December 26, 2013 (guidance).

FCT Payment 

FCT payments include interest, royalties, service charges, leases, insurance

premiums, transport charges, income from transfer of securities and goods supplied
within Vietnam or related to services rendered in Vietnam.

As regards CIT particularly, FCT payments is subjected to three categories,

which are:

− Services associated with goods

− Service Provider

− Supply and distribution of goods.

Calculation

There are distinct ways to calculate the FCT subjected to different kinds of
above-mentioned tax, but in term of CIT, Payable corporate income tax equal
revenue subject to CIT multiplied by the percentage for CIT calculation. 

Method of Payment

There are three methods of payments namely Deduction, Direct and Hybrid

a. Deduction method

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 Foreign contractors will have to submit the same CIT returns as
Vietnamese companies. Foreign contractors may apply the deduction method if
they fully meet the three following conditions:

− Have a permanent establishment in Vietnam or be a tax resident in

Vietnam

− Business term in Vietnam under the contractor contract; a

subcontractor contract of 183 days or more

− Applying the Vietnamese accounting regime, completing tax

registration declarations and being issued with a contractor tax code.

Foreign contractors will pay CIT at the rate of 20% on profits. 

b. Direct method

Corporate income tax will be deducted by the Vietnamese party at the fixed
percentages of total taxable revenue. These rates change depending on the
activities performed by the contractors.

The contractor tax declaration according to the method of fixing the ratio of
the foreign contractor providing goods and services for the oil and gas
exploitation, exploration, development and production is separately regulated.

c. Hybrid method

The hybrid method allows the foreign contractor to pay CIT at a fixed rate
calculated directly on total taxable income (although allow them to pay VAT
under the deduction method).

Agreement to avoid double taxation

CIT of the FCT as outlined above may be exempted under the relevant double
taxation avoidance agreements. For example, a CIT rate of 5% on services provided

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by a foreign contractor may be exempted based on double taxation avoidance
agreements if the foreign contractor has no income attributable to a permanent
establishment in Vietnam.

Vietnam has signed double taxation avoidance agreements with nearly 80

countries and a number of other agreements are in negotiation phase.

3. Comparison between CIT in Vietnam and China: 

Let's look at the previous CIT law of China, just as a comparative exercise that
might enable us to understand the evolution of both China and Vietnam behind FDI
regulations. The People's Republic of China's Income Tax Law for Foreign
Investment Enterprises and Foreign Businesses, which was in effect from July 1991
until its replacement in March 2007, It was a radically different system that
separated foreign-invested companies from domestic-invested companies and had
certain preferential tax incentives for the former. In the 1991 Income Tax Statute,
the major considerations were:

− Article 5: 30 per cent regular national tax, plus 3 per cent extra local rate 

− Article 7: Reduced tax rate of 15% for FDIs engaged in manufacturing or

commercial activities and developed in special economic zones (i.e.
Shenzhen, Xiamen, Shantou, Zhuhai and Hainan)

− Article 7: Decreased tax rate of 24% for FDIs engaged in production

situated in coastal open economic zones or in ancient urban districts of
cities with special economic zones or economic and technical growth zones
(i.e. Guangzhou and Tianjin)

− Article 8: Exception for the first two years of profit-making operations

planned for FDIs engaged in development

− Article 10: a refund of 40 per cent to CIT charged on the proceeds of

foreign investment reinvested in China in the region. 

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 In brief, most of the newly formed foreign-invested manufacturing firms in
Mainland China will benefit from a two-year tax exemption from the early 1990s
until March 2007, and the following three years would see a 50 percent drop in
taxes.

Furthermore, the rate of CIT will depend on the position where the investment
was placed. In Shenzhen and Zhuhai, this could range from 15 per cent to 24 per
cent in Guangzhou or Qingdao, or 30 per cent in Xi'an or Changsha. 

From January 2008, however, China adopted the "Law on Enterprise Income
Tax of the People's Republic of China" which defined the CIT rate applicable to
both foreign-invested and foreign-invested firms.

This was an epochal change from the previous law, which presented foreign-
invested businesses with preferential advantages. Under the CIT Statute of 2008,
corporate income tax is now the same, regardless of the venue, the extent of the
transaction, or whether the investment is spent domestically or abroad.

The normal tax rate is 25% according to Article 10 of the 2008 Income Tax
Act, with the exception of operations relating to the prospecting, discovery and
extraction of oil and gas and other valuable and rare natural resources, which can
range between 32% and 50%. However, the situations that come under tax rate
bonuses, deductions and reductions in the tax rate incentives, exemptions and
reductions are what stands out in the 2008 legislation. However, the situations
protected by tax rate bonuses, deductions and reductions are those referred to in
Articles 13, 14 and 15, respectively (which somehow bear similarities to incentives
offered in China over the last few decades).

The benefits for the tax rate provided for in Article 13 are comparatively
smaller than the regular one and are applicable to:

− Investment schemes in metropolitan areas with significant socio-economic

challenges, economic zones or hi-tech parks, newly developed enterprises:

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 10% tax rate for 15 years

− Newly developed companies in the form of high-technology investment

ventures, scientific research and technical advancement, the development
of state-owned infrastructure projects of specific significance, or the
manufacture of digital products: a tax rate of 10% for 15 years

− Companies working in the fields of education, vocational training,

healthcare, culture, Sports and environmental areas: 10 percent tax rate

− Investment schemes for newly developed companies in metropolitan areas

with socio-economic difficulties: a tax rate of 20 per cent for 10 years

− Agricultural support cooperatives and individuals' loan funds: 20% tax limit

− Large-scale and high-tech investment programs of special interest: 10

percent tax rate over 15 years.

The beginning dates for the period of the tax rate benefits stated in Article 13
shall be counted from the first year of turnover of the invested company.

It should be borne in mind that government decision-making processes in

Vietnam are much slower than in China, and that benefits are typically related to
less developed areas and/or particular sectors in Vietnam. In addition, being unique
to each initiative, there could be several explanations why an investor might prefer
China instead of Vietnam and vice versa.

Usually, however, investors do not determine which country to invest in purely

because of the local tax system; they are also driven by several factors. In recent
months, investors interested in seeking a development base to sell back home, or to
other plants they have across Asia, have seen an increasing interest in Vietnam.

Doing so takes advantage of the attractive tax benefit system of Vietnam, as

well as plentiful double tax arrangements and low labour rates that are reportedly
around 2.5 times lower than those of Mainland China. Moreover, it should be

16
remembered that China's regular benefit repatriation withholding tax is 10%,
although Vietnam does not currently have such a tax.

III. CASE STUDY: The Effect and Result of a CIT cut to Vietnam’s economy

1. Vietnam’s proposals to reduce CIT throughout the year

Nowadays, tax collection still depends too much on a number of tax

instruments such as VAT, CIT and Trade Tariff while Personal Income Tax (PIT)
only accounts for a modest proportion of about 6 % of total budget revenue. Tax
policies like these have a negative impact on growth and equality in income
redistribution. Hence, a tax system’s reform would not only generate a lot of
revenue but also stabilize the macro-economy and improve social welfare has
become essential.

Back in the old days, During the economic downturn between 2008-2009,
Vietnam provided a lot of tax support for businesses. Vietnam's Ministry of Finance
has issued a series of circulars such as Circular 03-BTC, Circular 04-BTC, Circular
05-BTC,… with the new regulations creating favorable conditions and incentives
for businesses as well as individuals in the economy. Highlights of these policies is
the extension of tax payment up to 9 months for the corporate income tax payable in
2009 (including income from the production of mechanical products, materials
products, production of construction materials, construction, installation, tourism
services, trade in food and fertilizers,...). Small and medium enterprises are granted
a 30% reduction in CIT for the fourth quarter of 2008 and 2009. This policy was
part of the stimulus package during the Financial Crisis. When Vietnam’s
government first enacted the policy at the end of 2008, it was planned to stop by the
end of 2009 so the policy would not be effective in 2010. However, this policy has
to be carried out once again in 2011 and 2012. SMEs are granted a temporary 30%
cut in CIT as the Government of Vietnam considers them incapable of finance and
critical for job creation. In fact, Vietnam has had many policies to support SMEs
over the years, such as the April 2017 Law of June 2017 which regulates access to
loans or technical assistance, and technology for these businesses. As a result, the

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Vietnamese government seems to want to support small and medium enterprises.
However, the incomplete adoption of the tax reduction strategy leads to an
imperfect result than intended. The total value of the government's economic
stimulus package from changes in tax policy stacked up to about 27,000 billion.

In this age and days, The Covid-19 pandemic is spreading globally. There’s
been many financial solutions introduced by governments to stabilize the economy
such as using trillions of billions of dollars in bailout, tax cuts, increasing public
spending and accelerating disbursement of public investment, supporting businesses
to borrow low-interest loans ... Each country applies these solutions on a different
scale and degree, depending on the magnitude of the losses caused by the disease to
them. 

On June 19, at the ninth session of the 14th National Assembly, the National
Assembly passed a policy aimed at reducing corporate income tax payable by 2020
for enterprises, cooperatives, public service providers and organizations, ...
According to the policy,  enterprises whose total revenue in 2020 does not exceed
VND 200 billion enjoy a 30% reduction of corporate income tax payable by 2020.
This Resolution takes effect 45 days from the date of its signing and applies to the
tax year 2020. 

2. The effect of a CIT cut on Vietnam’s economy

The negative result of a cut in CIT is that it will reduce the state budget revenue
of 2020 by about 23,000 billion VND. However, this proposal will contribute to
supporting the above enterprises to overcome difficulties caused by the Covid-19
epidemic, creating conditions for enterprises to accumulate capital to develop
production and business, and improve their competitiveness. Enterprise competition
is the premise for businesses to develop and transform into larger-scale enterprises
to contribute back to the state budget in the next time. Once again, the support
policy has been applied to the small-scale enterprise group, which is especially
critical for those enterprises to survive in the context of The Covid-19 epidemic
having such negative impacts on the economy. Through surveys, it is found that

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small and micro enterprises account for more than 93% of the total number of
enterprises in Vietnam and these enterprises have an important position in economic
development as well as social stability. Hence, such policy will exert multiple
advantages:

− First of all, the immediate benefit is that the tax rate is reduced. The
reduction of 30%, equivalent to nearly 1/3 of the corporate income tax
payable, is not a small number, this will serve as a driving force for
businesses to quickly stabilize their operations in such difficult
circumstances. When taxes are reduced, businesses will have the
opportunity to accumulate investment capital. Hence, the enterprise will be
able to innovate and improve the level of equipment, machinery and
technology for production and business

− Secondly, businesses will have the opportunity to find a workforce with

high skills, creativity and good discipline. At the same time, they can also
improve management in production and business activities, as well as labor
quality

− Finally, enabling businesses to promote investment activities and look for

talents in production and management would make investors feel secure.
From there, it will stimulate investment, production and business,
contributing to a better market and economy. It is the investor's confidence
that strengthens macroeconomic stability and encourages employees to
improve themselves. Hence, turning Vietnam’s economy into a highly
industrial one. 

Moreover, according to a study by “Keshab Bhattarai, Dung Thi Kim Nguyen

and Chan Van Nguyen” in 2019, using the CGE model, they found that output in
most production sectors increased in case of a reduction of CIT from 20% to 17%.
It also has a positive effect on household consumption of the richer individual.
Poorer people consume less because they have less money due to reduced transfers
from a decrease in tax revenue. The government also had to tighten public spending,

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causing low-income groups to lose their welfare. Meanwhile, richer people get more
benefits as they pay less taxes than before.

Figure 1: Impacts of 3% reduction in CIT rate on Output and Capital

As seen in Figure 1, the reduction in corporate income tax rate resulted in the
expansion of most of the organized industries in corporation with however, a little
decline in agriculture, education and public service. Some of these increases are due
to more investment in those sectors and others due to lower costs of capital. Profit
did not decrease despite lower CIT rates thanks to higher growth of industries. CIT
reform not only generates extra output, but also generates revenue for the
government.

The only adverse effect is that income inequality increases slightly as the
welfare of the poor might fall below the standard while the richer increase. It also
changes the commodity structure of the household consumption basket as shown.
Adverse distributional effects are also evident in the total well-being of
households.  

CONCLUSION

The paper gave a general status of the Vietnam's Taxes on Business in general,
before going into specific analysis of the law of Corporation Income Tax, with a

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total of 20 articles which are summarized into several noticeable points.
Subsequently, an analysis of Foreign Contractor Tax which is subject to the CIT is
also shown in this paper, before a comparison between the content and application
of this law in Vietnam and China is illustrated for a better understanding about its
pros and cons in the country of Vietnam. In summary, we can see that Government
dynamic cycles in Vietnam are much slower than in China, and this disadvantage is
normally identified with less evolved zones or potentially specific areas in Vietnam.
Furthermore, being special to every activity, there could be a few clarifications why
a speculator may lean toward China rather than Vietnam and the other way around.
Fortunately, as of late, financial specialists keen on looking for an improvement
base to sell back home, or to different plants they have across Asia, have seen an
expanding interest in Vietnam. Finally, this research finishes with a case study
about the effects that a CIT reduction could exert on the Vietnam economy,
including supporting small and medium enterprises to overcome difficulties caused
by the Covid-19 epidemic, creating conditions for enterprises to accumulate capital
to develop production and business, and improve their competitiveness. There are
also others impacts on the certain industries as well as household consumption
between rich and poor group, however, they are mostly positive impacts in general
and can out-weight the negative effects that a CIT cut might bring.

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