Proposal Urges Three-Year Tax Exemption for SMEs from First Profitable Year

On the afternoon of October 29, the National Assembly debated the draft Law on Small and Medium Enterprise Development in the plenary hall. The bill raises the annual revenue ceiling defining small and medium enterprises (SMEs) from 300 billion to 400 billion VND. Concurrently, eligible firms could receive corporate income tax (CIT) exemptions for three years from the date of their first business registration certificate.

Nguyen Van Than, Chairman of the Vietnam Association of Small and Medium Enterprises, voiced support for granting CIT exemptions to SMEs. However, the deputy from the Ho Chi Minh City delegation argued that the mechanism requires practical adjustments.

Specifically, Than proposed exempting SMEs from corporate income tax for three years starting from when they turn a profit, capped at a maximum of five years from initial licensing. “This approach provides both motivation and constructive pressure for enterprises,” he stated.

Nguyen Van Than, Chairman of the Vietnam Association of Small and Medium Enterprises, addresses the National Assembly. 

Similarly, Dao Chi Nghia, Deputy Head of the Can Tho City National Assembly Delegation, noted that the draft’s fixed three-year exemption from inception might miss the period when businesses actually generate taxable earnings.

“Enterprises often spend several years investing before seeing a profit,” Nghia observed. “The incentive window could expire entirely before any taxable income arises.” Consequently, he urged tying the preferential period to the first taxable tax year. He also recommended setting clear safeguards for corporate restructuring, spin-offs, conversions, and affiliated-party relationships to prevent policy exploitation.

Deputy Trinh Thi Tu Anh of the Lam Dong delegation asked drafting bodies to assess policy efficacy beyond simple headcounts and gross tax relief tallies. She highlighted firms investing in technological research, advanced production lines, or innovative product development. Such operations naturally require long gestational lead times before commercializing goods and earning taxable profits.

“A prolonged pre-tax revenue phase does not necessarily reflect operational inefficiency,” she noted. “Instead, it reflects sector-specific characteristics and longer capital investment cycles.”

Deputy Trinh Thi Tu Anh speaks at the plenary session on the afternoon of October 29. 

Conversely, Deputy Pham Van Hoa from the Dong Thap delegation expressed concern that raising the SME threshold to 400 billion VND could dilute public support resources. He argued that businesses generating 400 billion VND annually are already relatively substantial operations rather than truly small entities, suggesting lawmakers maintain the existing 300 billion VND limit.

Rebutting this concern, Nguyen Trung Kien, Full-time Member of the Committee for National Defense, Security, and Foreign Affairs, explained that 400 billion VND in top-line revenue does not guarantee large profit margins. Such companies often employ expansive payrolls, leaving thin operational margins.

Kien observed that fiscal incentives assist enterprises in reinvesting capital, scaling operations, creating employment, and eventually generating tax revenues for the state budget. “Withholding support under the assumption that high turnover equates to high profits could drive firms into insolvency,” he cautioned. “Resolving subsequent bankruptcies and socioeconomic fallout presents far greater complexities for state management agencies.”

Regarding the provision allowing enterprises and individual business households with annual revenues under 10 billion VND to adopt simplified taxation (tax rate multiplied by taxable revenue), Than supported authorizing the Government to adjust thresholds to match evolving socioeconomic conditions.

However, he advised writing an explicit statutory floor ensuring thresholds adjust upward without falling below 10 billion VND annually. He emphasized that this serves as a solid legal guarantee affirming state support throughout the SME development journey.

The National Assembly is scheduled to review and vote on the Law on Small and Medium Enterprise Development on November 20.