Tax cuts, institutional reforms help businesses grow

Vietnam's Ministry of Finance has proposed a 30 percent income tax cut for smaller businesses and enterprises in 2026-2027, aiming to stimulate growth and job creation. This policy, which applies to businesses with annual revenues up to VND10 billion (US$381,000), has garnered support from the business community. Tax cuts can provide businesses with additional cash flow for investment in machinery, production expansion, and job retention, ultimately benefiting the broader economy through increased consumption, investment, and growth.

Vietnam cannot solely rely on public investment or foreign investment for double-digit growth; the private sector must play a significant role. To become a growth engine, businesses need the capacity to accumulate capital, reinvest, and expand. Tax reductions should not be viewed merely as a decline in State revenue but as an opportunity to increase investment, adopt new technologies, create jobs, and expand production.

While income tax cuts primarily benefit profitable businesses, they can also help transition loss-making businesses into formal enterprises by providing access to finance, technology, and markets. However, tax incentives alone are insufficient; businesses require lower production and operational costs, a favorable and stable business environment, and a predictable regulatory setting. Simplifying administrative procedures, reducing waiting times, and improving access to credit can significantly alleviate business burdens.

The policy could expedite the transition of small businesses into medium-sized enterprises, enhancing the private sector's competitiveness. In the long term, a stronger private sector generates more jobs, expands production, increases productivity, and contributes more to the budget. Although the tax cut may initially reduce short-term revenue, a larger and more robust business sector can create a broader and more sustainable tax base over time.

Thus, the 30 percent tax reduction should be seen as a vital investment in the growth and development of Vietnam's business landscape, complementing institutional reforms to create a more conducive environment for economic prosperity.