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Skip taxes and add fees, enterprises should be glad or worry

Ministry of Finance has announced the Draft of Decree on business-license fee replacing current business-license tax, in which from 2017, the fee would be increased dramatically for enterprises.

According to the draft, the business-license tax, a direct - quota tax imposes to the business license of enterprises and households as well will be renamed to “business-license fee” and governed under Law on fees and charges. The abolition of such tax would be a revolution for enterprise community but new fee seems to make them meet more difficulties in production and business.

Fees is tripled compared to tax

Currently, there are two objects being charged business-license tax with different rates. The first is enterprise with 4 levels of tax, equivalent to the amount of from one to three millions Vietnam Dong per year. The second is individual and business household with 6 levels of tax, from 50,000 VND to 1,000,000 VND per year, based on monthly income. In particular, individual and business household have income lower than 300,000 VND per month also must pay 50,000 VND for annual business-license tax.

According to the draft, the state will not collect business-license tax but collect business-license fees and adjust the rate of fee. For enterprises with registered capital of over 100 billion Vietnam Dong and the capital from 10 billion Vietnam Dong to 100 billion Vietnam Dong and the capital below 10 billion Vietnam Dong, the business - license fee is 10 million Vietnam Dong per year, 5 million Vietnam Dong per year and 3 million Vietnam Dong per year respectively. Branches and affiliated stores pay 2 million Vietnam Dong per year.

For households and individuals, business-license fees are reduced to 2 ranks, based on revenue per year. Turnover below 100 million Vietnam Dong per year shall not be taxed. Thus the business-license fees have increased approximately 3 times compared to the business-license tax.

Increase fee in order to match the minimum wage

Department of Tax Policy - Ministry of Finance has launched main reasons for the adjustment of business-license fee rates. Firstly, the current rates have been applicable for 14 years, so far behind the economic and social situation. The salary as a basis to build this tax was 290,000 Vietnam Dong per month (the minimum wage in 2002). Currently, the minimum wage was up to 1,150,000 VND per month (from 1st May 2016, the minimum wage is 1.21 million VND).

Secondly, a lot of different rate also make it difficult for enterprise and tax authorities in determining the level of business -license tax. Most individual business households pay taxes according to the presumption method, current provision is 6 rates, based on income per month. To determine the income tax, tax authorities have to spend a lot of time and manpower to identify and investigate the incomes and expenses, which leads to higher operating expenses.

Not only that, the current business - license tax has caused inequalities to taxpayer. Under the provisions of the Law on Personal Income Tax (PIT), individuals with incomes below 9 million Vietnam Dong per month do not have to pay PIT (If individuals have two dependents and income less than 16.2 million Vietnam Dong per month also do not have to pay tax). Meanwhile, business households with income 300,000 VND still have to pay business-license tax. Therefore, basing on incomes to grade business-license tax of business households is no longer consistent with actual situation.

Whether turning tax into fee is supporting enterprise or not

Proposal regarding turning tax into fee and increasing fee rate appeared in the context Government has given policy to exempt from taxes to support enterprise community. In particular, in October 2014, Government agreed with the proposal of Ministry of Finance on the project of amending and supplementing some articles of laws on tax, including content of abolition of business-license tax. Therefore, many businesses said that new regulations on business-license fees not only do not support businesses in the new economic context, but also they violate the principle of unity in the process of making law of state agencies.
However, Ministry of Finance said that the draft will be extensive consultation of ministries, local agencies and organizations and individuals before insurance to ensure the conformity with the actual situation.

Dinh Tien Hoang - Vietthink Law Firm
Last updated: 10/04/2016