Local corporations pay higher corporate income tax

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Local enterprises expressed concerned over one regulation that has led to higher corporate income tax rates. (Source: vneconomy.vn)

Large enterprises such as EVN, Vinacomin, Vicem, Lilama and some private enterprises have sent a request to the Ministry of Finance (MoF) to change the regulation on deductibility of loan interest, reported vneconomy.vn.

In a letter sent to the MoF, EVN said re-lending activities with its members are implemented in accordance with Government regulations and market rules.

Limiting expenses for loan interest according to deductibility would make investment activities more difficult for EVN and its members, especially power generation companies, to develop power projects.

Higher demand for electricity in the coming months is expected to lead to an increase in EVN’s investment in new projects. However, EVN’s members do not have enough capital to meet investment demand, so they need to use domestic and foreign loans.

Under the regulation, EVN Genco 1 and EVN Genco 3 would see their corporate income tax bills increase by VND339 billion and VND216 billion, respectively. Meanwhile, EVN would pay an additional 762 billion.

Some other large enterprises expect to pay more as well. Vinacomin (TKV) would pay an additional VND410 billion, Masan Group would add VND111 billion to its tax bill and Novaland would add VND185 billion.

According to Decree 20/2017/ND-CP, the deductibility of loan interest is capped at 20% of earnings before interest, tax, depreciation and amortisation (EBITDA). Expenses for loan interest exceeding 20% are taxable.

Vietnamese businesses, especially those investing in key industries, end up paying higher income taxes because they borrow huge amounts of capital.

Lenders must pay taxes on income from the loan interest, while borrowers pay for exceeding the borrowing costs ceiling.

The regulation has also made corporations limit their investment in business development in some fields that need to encourage development.

Capping the interest rate ceiling for loans impacts lending and borrowing activities that are common in state corporations and private firms.