Vietnam urged to redesign tax incentives to help SMEs scale up

At a regular government meeting on Monday, the prime minister instructed the Ministry of Finance to study corporate income tax reductions for SMEs and promptly submit a proposal to the National Assembly to amend the Law on Corporate Income Tax, with the aim of putting the changes into effect later this year.

The prime minister also asked the ministry to consider including individuals and household businesses within the scope of the draft Law on Small and Medium-sized Enterprise Development.

The move is intended to encourage household businesses to convert into companies, particularly one-person companies.

Nguyen Van Phung, a senior tax expert, said support for SMEs should not stop at reducing corporate income tax rates. The first step should be reviewing and revising the criteria used to classify SMEs.

The capital or revenue threshold of no more than VND3 billion (US$114,174) has been in place for nearly a decade, while the economy and GDP have changed significantly. The threshold should be raised so that more businesses can qualify for support policies, including tax incentives, Phung said.

Tax policies should also ensure fairness among different groups of businesses and take into account the characteristics of individual industries rather than applying a single set of criteria, he said.

The classification of businesses by size should similarly reflect the characteristics of different sectors.

Vietnamese authorities already have a database classifying businesses by economic sector, along with indicators such as revenue, profit and value-added or profit margins by industry. These data could serve as a basis for developing policies, Phung said.

"To create room for SMEs to grow, tax support policies must be designed as a comprehensive package rather than simply reducing corporate income tax rates," he emphasized.

Mac Quoc Anh, vice-chairman and secretary general of the Hanoi Association of Small and Medium Enterprises, said any amendments to corporate income tax policy should be designed to motivate SMEs to expand rather than simply provide across-the-board tax cuts.

He suggested considering a three-tier tax structure.

The proposed tax rates would be 12 percent for businesses with annual revenue of no more than VND3 billion ($114,174), 15 percent for those with revenue of more than VND3 billion ($114,174) up to VND50 billion ($1.9 million), and 17 percent for other qualifying SMEs.

"A reduction of 2-3 percentage points would provide businesses with enough additional resources for reinvestment while limiting the impact on state budget revenue," Anh said.

He also proposed expanding tax incentives to cover all medium-sized businesses that meet the criteria, rather than relying solely on the VND50 billion ($1.9 million) revenue threshold.

Such businesses have the potential to invest in technology, expand production, join supply chains and create more jobs, he said.

Anh recommended applying the policy from the 2026 tax year and maintaining it for at least two years to give businesses enough time to plan investments.

A reasonable transition mechanism should also be introduced so that businesses that just exceed the revenue threshold do not immediately face a higher tax rate, helping prevent them from becoming reluctant to expand.