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.

Buu Dien

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Views split over IT public investment

HANOI – There are many different opinions about the present structure of public investment in IT at home.
As per a recent report of the Information Technology (IT) Department under the Ministry of Information and Communications, the Government spent about VND1.25 trillion purchasing IT products last year. The sum included VND351 billion for software and up to VND904 billion for hardware.
There are some saying that the Government is heavily focusing on developing hardware infrastructure and purchasing equipment like desktop computers rather than services and software and the investment is not proportionate.
However, Nguyen Duc Toan, director of EMC Vietnam, a provider of IT infrastructure solutions such as information storage and security, said Vietnam’s structure of investment into the IT industry is suitable.
In the first phase of IT investment, the investment ratio set aside for hardware will be higher than that of software, he said, explaining that infrastructure is always in need of investment first. It is like the traffic industry in which roads will be developed before vehicles are purchased.
“Besides, the fact that whether investment and deployment of software is successful or not depends on suitable process and awareness of users. New software cannot necessarily change the IT system for the better,” Toan said.
He underlined the importance of taking a long time to change the industry for the better. Previously, software projects were for addressing micro issues, but lately software schemes with considerable impacts like public financial projects have also started.
Toan asserted the current IT public investment is not misleading. Statistics of Gartner indicate an investment ratio of 18% for software is the common structure for IT investment in many other countries but the figure of VND351 billion out of a total VND1.25 trillion is not small, he clarified.
“Moreover, when looking at the overall IT investment picture, we can see that a lot of public services have become much more convenient compared to a decade ago thanks to IT investment,” he added.
Regarding the issue, Deputy Minister of Information and Communications Nguyen Minh Hong agreed that public opinion tends to pay attention to the investment ratio between hardware, software and services in comparison with the total investment value. However, Hong said the ministry will adjust the ratios in accordance with reality in every specific development period.

By Van Oanh - The Saigon Times Daily

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