The law to support small and medium – sized enterprises (SMEs) will help generate over US$19 billion in taxes, according to an impact assessment by economic expert Le Duy Binh. — Photo vef.vn

HA NOI (Biz Hub) — The law to support small and medium – sized enterprises (SMEs) will help generate over US$19 billion in taxes, according to an impact assessment by economic expert Le Duy Binh.

Binh said the law, the draft of which was being made available for public comments, would contribute to realising the Government's goal of doubling the number of small businesses by 2020 and expanding the private economic sector.

Further, he estimated that $10.5 billion in investment would be poured into business and production, which would help generate 8.5 million new jobs and collect an additional $19.2 billion in taxes for the State budget.

Currently, private firms pay VND200 trillion ($8.9 billion) in taxes to the State budget annually, noted Binh.

With a 5 per cent reduction on corporate income tax for start-ups, support in public procurement, banking loans and land access, Binh estimated that the Government's support would be equal to VND18.7 trillion, or 1.6 per cent of budget spending.

The reduction in corporate income tax seeks to improve the capacity, as well as competitiveness, for SMEs in the long term, although this might cause drops in budget collections in the short term, according to the drafting agency.

However, several firms questioned the feasibility of the law.

According to Tran Thi Dep, chairwoman of An Giang Business Association, the law should provide realistic support. "Too much support along with implementation difficulties is not good," she said.

For instance, the draft law stipulates that SMEs would receive a 5 per cent reduction on corporate income taxes in their first five years of operation. However, most SMEs often suffer losses in their initial years, Dep said, adding that in such cases the support would be meaningless.

Economist Vu Dinh Anh said that a reduction of corporate income tax might have positive impact on SMEs, but only enterprises that were earning profits could benefit.

In fact, over the past five months, 28,500 enterprises filed for bankruptcy and most were SMEs, he said.

"If enterprises want to have profits, they have to either cut costs or raise selling prices," Anh said, adding that "price hikes are not a wise decision given the competition."

Therefore, the Government should create favourable conditions for companies to expand markets and eliminate unnecessary costs, such as road tolls that erode profits, he said.

To Hoai Nam, deputy chairman of the SMEs Association, said that the supports should be more detailed to ensure that firms would benefit.

In the latest draft version, any discrimination in business conditions or administrative procedures against SMEs or deeds, which were intended to cause difficulties to SMEs, were banned. Criminal prosecution could be applied for violations.

Pham Thi Thu Hang, general secretary of the Viet Nam Chamber of Commerce and Industry, suggested that the law should encourage firms by improving the overall business climate, rather than "subsidising" them.

This would be the first time Viet Nam had a comprehensive legal framework to support SMEs, which made up for 97 per cent of Viet Nam's business community and contributed 45 per cent of the country's gross domestic product.

According to the drafting agency, the Enterprise Development Agency under the Ministry of Planning and Investment, SMEs needed support from the Government to overcome difficulties and develop, amid the country's rapid integration, while the efficiency of existing support policies remained limited.

SMEs still found it difficult to access resources such as land, capital and policy updates, a recent report on provincial competitiveness revealed.

At a conference to seek comments on the draft, experts said the law should also pay attention to business households in Viet Nam, which were estimated to number 4.5 million in the country, and played a significant role in the economy.

However, Ho Sy Hung, director of the Agency for Enterprises Development (AED), said that as the State budget was limited, the support policies would focus on SMEs. "The development of SMEs will promote the development of business households, as a result," Hung said.

According to the draft, SMEs were defined as firms with revenues of less than VND100 billion ($4.5 million) in the most recent year, or fewer than 300 employees. — VNS