Monday, January 7, 2013

Software firms fear value added tax

VietNamNet Bridge – The Ministry of Finance plans to put software products onto the list of products subject to the 10 percent value added tax (VAT). If this comes true, this would put big difficulties for software firms.
 
Vietnam, IT power, tax, investment, software firms


The Ministry of Finance is drafting the amended VAT and corporate income tax laws, planning to make big changes in the tax rates on software products and the business in the information technology sector.

At present, software products do not bear VAT, but this may change when the new laws take effects. The law drafters have planned that the 10 percent VAT would be imposed on software products.

The ministry has pointed out that the zero VAT rate is only reserved for export products, while the five percent tax rate is only reserved for some kinds of essential goods.

The taxation is believed to affect the operation of software firms because it would make the production costs higher. Meanwhile, enterprises still have to struggle hard to survive in the current economic downturn.

The Ministry of Information and Communication is collecting opinions from information technology firms about the attempted taxation, having requested the firms to provide deep analyses about the possible impacts of the taxation on their activities.

Also regarding to the tax policies, the regulations on corporate income tax draft law has raised controversy. At present, software production can enjoy the corporate income tax incentives. They can enjoy the tax exemption for the first time for years of operation. They have to pay the preferential tax rate of five percent in the next nine years. After that, they have to pay 10 percent in tax for the next two years.

However, the tax incentives have not been appreciated by domestic firms. The director of an information technology firm said that the current policy only benefits joint ventures and foreign invested enterprises. Meanwhile, a lot of Vietnamese enterprises have been taking loss, and they don’t have to pay tax to enjoy the tax incentives.

The attempt to tax software products has raised worries about the future of the software industry in Vietnam. Some experts have pointed out that while the government shows its determination to turn Vietnam into an information technology power, the tax policies do not encourage the development of the software industry.

The experts think that instead of offering corporate income tax incentives, it would be better to offer personal income tax preferences to the workers in the software industry. For example, foreign programmers or experts working in Vietnam bear lower personal income tax rates.

They have stressed that this is an important solution that helps attract high quality labor force for the Vietnam’s software industry.

In fact, it is not easy for the Ministry of Finance to make decisions on raising or reducing taxes. Disagreements always exist among the enterprises in the same business fields.

In the information and communication industry, for example, computer part manufacturers insist on higher tax rates in order to protect domestic production. Meanwhile, assembling enterprises want the tax rates to go down to make the input part imports cheaper, thus helping make their products more competitive.

In related news, the software firms which have been earning their living in mainly in the domestic market have experienced a tough year in 2012, with the turnover down by 30 percent. Many of the firms have to stop operation because of the sharp cuts of the orders from the State and domestic consumers.

Meanwhile, the firms are believed to “live better” than the software firms which target foreign markets.

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