8
is possible that angel investors will help SMEs
address their problem of capital, learn advanced
management practices and achievements in
science and technology for their businesses.
Tax policies contribute to enhancing the
initiative and transparency in business accounting
of enterprises. The new, clear and transparent tax
policies force SMEs adjust their accounting and
invoicing regimes in order to benefit preferential
policies such as input VAT deduction. Especially,
according to the Law on VAT, enterprises that
want to deduct input tax must pay via banks
for goods and services purchased, except for
goods and services purchased each time valued
at less than VND20 million. This is important in
reducing the risk for businesses when dealing
with companies that have been dissolved, gone
bankrupt or just buy and sell invoices, thereby
contributing to control and ensure financial
status, prevent tax fraud and tax in SMEs.
Limitations in implementing tax policies towards
SMEs
In the past years, the Government has applied
variety of modifications, supplements to tax
policies towards SMEs in attempt to adjust to new
economic condition and to support the business
operation of SMEs. However, tax system and tax
policies still show limitations namely:
- Tax policies are changed frequently in short-
term, modification and supplement routine is
implemented slowly, reporting forms and sheets
are frequently changed causing loss of time and
costs of the SMEs. Measures taken mostly are tax
payment extension and tax payment deferment;
these measures only relieve the difficulties of
SMEs at a certain time but in the long-term, they
burden tax liabilities on the SMEs for the next
years. In addition, procedure for tax exempt, tax
reduction and appraisal are complicated causing
negative feelings of the tax exempted subjects.
- Typical regulations on tax also show
inadequacies. According to the Law on VAT,
there are three tax rates are applied: 0%, 5%, 10%
to different business lines. In the long run, the
imposition of these three tariffs is complicated
and inappropriate as more tax rates lead to non-
transparency and increased tax. For business
income tax, the tax rate (20%) for SMEs inVietnam
is still very high compared to other countries, so
it is not enough to stimulate the development
of these enterprises. Besides the incentive effect,
business income tax incentives can also “distort”
the investment environment, circumventing the
law for tax incentives. For example, an enterprise
can register to establish a new company instead
of the old one when the incentives expire. Or, an
enterprise can transfer profits from the parent
company without preference to its affiliates to
benefit incentives and reduce taxable income.
Thus, tax incentives will make the enterprises
themselves split or transformed into smaller
State budget (subsidy, guarantee,
insurance, preference, tax reduction...)
Foreign capital
Mobilized from the capital
market
Partner (deferred payment,
commercial credit...)
Credit capital,
guarantee, discount, nancial
leasing
Equity capital,
contributed capital
Capital
for SMEs
CAPITAL FOR SMALL AND MEDIUM SIZED ENTEPRISES
Source: The research of author
