The Vietnam Ministry of Finance is proposing amendments to the Law on Corporate Income Tax to foster environmental protection and sustainable development. These amendments will exempt firms from corporate taxes on income derived from green bond interest and carbon credits.
The proposal aligns with the global trend of using tax policies to incentivise environmentally friendly practices. Countries like Mexico, India, Thailand and the United States have implemented similar tax policies to support environmental protection and sustainable development.
Vietnam’s Law on Environmental Protection (No. 72/2020/QH14), passed by the National Assembly in 2020 and effective from January 1, 2022, includes regulations on carbon credits and mechanisms for their exchange and transfer. These regulations provide a legal framework for implementing and managing carbon credit activities in the country. By establishing supporting policies and mechanisms, the State aims to encourage the development of a carbon market and promote environmental protection efforts.
In addition to carbon credits, the Law on Environmental Protection also addresses green bonds. The Ministry of Finance (MoF) has assessed the potential impact of tax exemption for interest income from green bonds and green bond transfer income. It is estimated that successful issuance of green bonds, representing 0.17-0.5 percent of the bond market size, would result in approximately VNĐ100 billion-VNĐ300 billion (US$4 million-$12 million) in corporate income tax exemptions.
The ministry considers this reduction in State budget revenue to be relatively small, constituting a very minor proportion of the total State budget revenue from current corporate income tax. Moreover, the current Corporate Income Tax Law exempts tax on income from transferring emission reduction certificates (CERs) for enterprises granted such certificates. However, it does not extend this exemption to income from the transfer of voluntary emission reduction certificates (VERs).
As a result, finance officials have suggested amending the Corporate Income Tax Law to include tax-free transfers of emission reduction certificates, encompassing both CERs and VERs.
