Effects of corporate tax on the profitability of Vietnam-listed enterprises
1. Introduction
The engagement of government in providing social amenities in developmental projects is a
compulsory phenomenon for the improvement of standard of living of the citizenry (Madugba, Ekwe &
Kalu, 2015). This however necessitated the government to source for fund from various sources where
corporate taxes arenot left out. (Madugba,et al.,2015) defined tax as compulsory levies impose by the
government of a nation on the income, profit and properties of both individuals and corporate
bodies for the administration of the government which has no compensatory benefits. Taxation can
either be direct or indirect paid by firmimpact heavily on their performance (Nwaobia & Jayeoba, 2016).
The direct taxes borne by companies can becompany income tax, petroleum profittax, capital gain tax,
education tax, withholding tax etc. equally, the indirect taxes borne by the final consumer for the
consumption of goods or services includes value-addedtax, and custom and excise duties.
However, corporate tax is charged on the profits generated by companies, public
corporations and unincorporated associations such as industrial and provident societies, clubs and
trade associations (Raza, Ali & Abassi, 2011).
In Nigeria, companies are mandated by law to pay company income tax on profit earned with 30%,
education tax of 2%, withholding tax of 10% and value-addedtax of 5% in the
year/periodpreceding assessment. Relevant tax authorities includes Federal Inland Revenue Service,
State InternalRevenue Service and Local Government Revenue Committee which collect taxesand
other chargeson behalf of Federal, State and Local government respectively (Madugba, et
al.,2015).Corporations embark on corporate tax planning in other to mitigate tax liability legally. This
is however expected to result in a positive impact on firm’s cash flow and increase its after-taxreturns
(Nwaobia & Jayeoba, 2016). Heavy tax burdens exerted negative impact on firm’s [Link]
equally, Afuberoh and Okoye (2014) opined that revenue derivedfrom taxation hasbeen very low
andno physical development has actually take place. Kiabel (2009) is of the view that the shocks from oil
price contributes to the reduction of revenue generated by government in the recent years, this
prompted the urgent need for government to generate revenue through taxation particularly corporate
taxes. However, this study designed to examine the effectsof corporate taxation on the profitabilityof
some selectedfirms in Nigeria.
1. Introduction
Background to the Study
Businesses work for financial gain and receive valuable services from the government. Better road
networks, effective and efficient telecommunication, energy, and water supply are being built by the
government. The government also creates colleges of technology and universities to enhance human
resources. It has become increasingly important for the company as they face increased scrutiny over
how much tax they pay and whether they are paying the correct amount of tax to the government, as
the amounts of tax that they pay represent a key component of the contribution that they make to the
economies in which they operate. Taxes are a cost that has to be managed like any other cost,
and the level of taxes paid is one of the factors that are taken into account when government
making decisions on where, when and how to provide social amenities and infrastructural
facilities. Company which benefitting from the government must directly contributing to the
government purse, this is where corporate tax comes in. Corporation tax is a tax on the taxable
profits of limited companies and some organisations including clubs, societies, associations, co-
operatives, charities and other unincorporated bodies.
Corporate income tax (CIT) is a direct tax levied on the profit earned by companies or organizations. In
general, profits are considered gross revenue minus expenses. Taxpayers include business entities in all
economic sectors, professional organizations, and foreign corporations with production and trading
activities in Vietnam.
The types of enterprises that are subject to CIT in Vietnam include local and foreign businesses which
are established under Vietnam’s Law on Enterprises. Law on Investment, Law on Credit Institutions, Law
on Securities, and Commercial Law, including joint-stock companies, limited liability companies,
partnerships, and business cooperation contract. These enterprises will pay tax on taxable incomes
generated in and outside Vietnam. Vietnam defines the types of enterprises subject to CIT in Decree No.
218/2013/ND-CP.
The standard corporate income tax (CIT) rate is 20%. Enterprises operating in the oil and gas industry are
subject to CIT rates ranging from 32% to 50%, depending on the location and specific project conditions.
Enterprises engaging in prospecting, exploration, and exploitation of mineral resources (e.g. silver, gold,
gemstones) are subject to CIT rates of 40% or 50%, depending on the project’s location. Similar to
previous years, in order to support enterprises being affected by COVID-19, the government has issued
Decree 34/2022 on extension of deadlines for tax and land rental payments in 2022, which took effect
from the signing date of 28 May 2022 to 31 Dec 2022. There is no concept of tax residency for CIT.
Business organisations established under the laws of Vietnam are subject to CIT and taxed on worldwide
income. 20% CIT shall be applicable to foreign income. There are no provisions for tax incentives for
such income.