VietNamNet Bridge – The current policy on VAT incentives turns out to maltreat software firms, while the corporate income tax incentives have been benefiting foreign firms. Meanwhile, there has been no personal income tax for software workers.

Preferential treatment or maltreatment?

According to Le Hong Ha, Director of Ha Thang Company, people may think that software firms now can reap big benefits when they can enjoy VAT incentives. However, in fact, they have been in a big disadvantage because of the tax incentives.

Under the current taxation regulations, once enterprises are subject to VAT exemption, they would not have tax refund for their expenses to make finished products. However, the enterprises subject to the zero percent VAT, would get the tax refund.

This means that software firms, which are not imposed VAT, would not get tax refund, even though they have to buy input materials and spend expenses with the 10 percent VAT. As a result, the production cost of software firms is high, thus weakening the products’ competitiveness and reducing firms’ profits.

Ha said he wishes to see software firms be added into the list of business fields subject to the zero percent VAT.

Sources said that the Ministry of Finance, which is reconsidering the taxation, may still tax 10 percent on the software firms whose products are consumed domestically, and zero percent on the firms to export their products. If the solution is approved, the ministry would still be able to collect tax, while software firms would still be able to enjoy tax incentives to develop, since it is considered the key industry for Vietnam.

Foreign firms enjoying big benefits

Tran Trong Thanh, President of VINAPO, complained that the currently applied corporate income tax incentives only benefit foreign firms, while domestic ones have been in no way making benefits from the policy.

According to Thanh, it is necessary to classify two groups of technology companies. The first one includes the companies that develops technologies and create added value. The second one includes import companies and trade foreign technologies.

With the current corporate income tax incentive policy, the companies which import technologies and utilize in Vietnam would have many chances to carry out the transfer pricing in Vietnam to enjoy benefits.

Meanwhile, the corporate income tax incentives do not have much significance to domestic technology firms. They usually take loss in the first 3-5 years of operation; therefore, they do not take care about the corporate income tax.

Under the current policy, information technology companies enjoy the corporate income tax exemption for the first four years, pay 5 percent in the next nine years and 10 percent in the next two years.

However, Thanh said that in order to enjoy the tax incentives, firms need to prove that they can meet the criteria to be recognized as technology firms. The criteria include the requirements in the number of workers, the number of workers with high education degrees.

The requirements, according to Thanh, are overly high strict. “Even Facebook, Apple and Dell could not meet the requirements to be recognized as technology firms, because their directors do not have university degree,” he said.

Personal income tax incentives, why not?

Experts believe that the personal income tax incentives would be the most effective solution to encourage the development of the software industry.

“Start-up companies always have to spend big money to pay to qualified workers. If the workers can enjoy personal income tax, the actual pay they can receive would be higher,” Ha explained.

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