Skip to main content

It was very heartening indeed to see that at the beginning of August, the Vietnam National Assembly unveiled a resolution to offer small- and medium-sized enterprises (SMEs) a 30 per cent break on their corporate income tax to help them cope with the impact of the COVID-19 pandemic. While only applicable to businesses with total revenues of under VNĐ200 billion (US$8.65 million), SMEs are thought to account for as much as 97 per cent of companies in Viet Nam, meaning such a move is likely to prove a lifeline to the many hard-hit businesses operating under that level.

The Ministry of Finance has estimated that tax revenues will fall by about VND23 trillion for this year. Still, although this is a hefty amount with a global recession bearing down on us, I thought the move showed a remarkable degree of wisdom and generosity to the business community. In a similar style, governments all over the west have been extending support, notably by subsidising workers’ wages via job retention or “furlough” schemes. The costs are undoubtedly immense ($130 billion and counting in the UK), but policymakers rightly take a long-term view. If companies go under and workers are laid off permanently at an unmanageable scale, economic carnage will ensue.

Death and taxes

All this got me thinking about how an important – and emotive – subject taxation is. In 1789, one of the US founding fathers, Benjamin Franklin, wrote: “In this world, nothing can be said to be certain, except death and taxes”. And it is as true then as it is now that both are about as popular as they are unavoidable. Most of us pay our taxes grudgingly, but we must all concede that paying our dues is a foundational pillar of society. Without taxes on income and profits, it simply couldn’t exist. How else would essential infrastructure and institutions like roads, hospitals and schools exist?

Governments must grapple with who to tax, how much, when and why, before “selling” their regime to the populace. Tax authorities do have far-reaching powers, but they must make paying as palatable – and easy to bear — as possible. There is a very fine balance to be struck if governments are to maximise the “tax take” but avoid all the negative consequences that come with overburdening individuals and businesses. Tempting people to avoid or even evade tax, curbing companies’ investment, and even deterring people from entrepreneurship altogether are genuine risks. In a globally connected, truly mobile world, countries must beware of incentivising people and enterprises to go elsewhere.

Competing on tax

Some argue for taxation to be uniform globally so that jurisdictional “tax arbitrage” becomes a thing of the past. When we see global corporations getting creative with their accounting and domiciliation to minimise their liabilities, it is easy to see why some may favour this. However, I and many others believe it is healthy for governments to have some element of tax competition in view when they set their levels. Keeping things reasonable is in everyone’s interest, from the very highest in society to the lowest, I believe. Indeed, there is abundant evidence that turning the screws on tax rarely increases overall revenues. Even if people and businesses stay put (which history tells us they often don’t), the costs of collecting from an unwilling populace shortly become untenable. These costs are, of course, political too.

The value and values of tax

As a career financial advisor, I have spent many years guiding businesses and individuals through the complexities of taxation. I have formed a strong view that transparency and accountability are essential (and I know of what I speak, the UK has one of the world’s most labyrinthine codes). If people know exactly what they must pay, but crucially also that these monies are fairly collected and then well spent, life gets easier all round. The better angel in us knows that we must all pitch in if society is to be happy and progress. Harnessing those good instincts is the tricky task governments face.

ASEAN countries often have a problem in this regard; sometimes, governments are mistrusted. Its populations are suspicious about the fair distribution of tax revenues and feel the need to conjure sophisticated and sometimes unsophisticated tax mitigation/often evasion methods. Corruption and lack of transparency do not breed confidence in any system. Until such governments change their modus operandi, including fairness, honesty, transparency, fair tax distribution, community orientation, business and individual incentivisation, this challenge will act as a continual drag on their economies.

Taxation of the wealthy and big business is always one of the fulcrums on which US elections (and others) will turn, and we can expect the tax to become a burning global issue as the recession bites. Arriving at the correct answers will call for incredibly nuanced economic, political and humanist debate.

Any move the Vietnamese Government has made, which aims to protect commerce and livelihoods, should be applauded.

If money makes the world go round, then taxes make it function. However, making tax regimes themselves work is something I’m happy to leave to wiser heads than mine.

Brian Spence – HSP Consulting