Statistics show that the current size of Vietnam’s bond market exceeds VND3 quadrillion

Tax exemption to boost carbon credit market

The Ministry of Finance is proposing amendments to the Law on Corporate Income Tax, offering exemption on corporate taxes on income from green bond interest and carbon credits.

These amendments are designed to better protect the environment and promote sustainable development in line with the global trend of using tax policies to incentivize environmentally friendly practices.

Developing the carbon credit market is a crucial solution for achieving environmental protection goals as outlined in the Law on Environmental Protection No.72/2020/QH14, passed by the National Assembly in 2020 (taking effect as from January 1, 2022). This law includes provisions on carbon credits, mechanisms for trading and transferring them, and states that the Government needs to establish policies to support and encourage the development of carbon credits.

The Law on Environmental Protection also contains regulations on green bonds issued by the Government, local authorities, and enterprises according to the law on bonds, to raise funds for environmental protection activities and investment projects that provide environmental benefits. Green bond issuers and investors are entitled to incentives as regulated, with the Government tasked with providing detailed regulations.

Accordingly, the draft Law on Corporate Income Tax (amended law) states, “To further promote activities towards sustainable development goals in Vietnam, especially in fulfilling Vietnam’s commitments at COP26, it is necessary to study and include tax exemption for income from carbon credits and green bonds, similar to practices adopted by countries around the world.”

Regarding income from the transfer of carbon credits, the Ministry of Finance notes that such activities have not yet occurred; therefore, there is no corporate income tax revenue from this activity.

Furthermore, according to the Ministry of Finance, in terms of additional regulations for tax exemptions on interest income from green bonds and income from the transfer of green bonds, statistics show that the current size of Vietnam’s bond market exceeds VND3 quadrillion.

It is calculated that if green bonds are successfully issued, representing 0.17 percent to 0.5 percent of the market size (the average rate in other countries is 0.05 percent to 0.65 percent) with a coupon interest rate of about 10 percent per year, corresponding to an issuance volume of about VND5-15 trillion and interest income of VND500 billion to VND1.5 trillion, the amount of corporate income tax exempted would be around VND100-300 billion.

Thus, according to estimates, the reduction in state budget revenue is not significant, accounting for only a very small proportion of the total state budget revenue from corporate income tax, according to the Ministry of Finance.

Developing the carbon credit market is a crucial solution for achieving environmental protection goals

Tax exemption for transfer of emission reduction certificates

Article 4 of the current Law on Corporate Income Tax specifies 11 types of income exempt from corporate income tax in certain sectors, including income from the transfer of Certified Emission Reductions (CERs) issued to businesses for reducing emissions. The Ministry of Finance also acknowledges the existence of Voluntary Emission Reductions (VERs) alongside CERs in financial activities aimed at environmental protection and sustainable development, as reviewed under environmental protection laws.

Both CERs and VERs share the objective of promoting environmental protection through carbon emission reduction, enhancing societal awareness of greenhouse gas reduction, and advancing green and sustainable development. They differ in registration standards, transaction forms, and market values.

VERs involve stringent registration procedures and technical conditions, and are voluntarily purchased by organizations and individuals at transfer prices that differ from those of CERs. Meanwhile, CERs have somewhat relaxed registration requirements and are mandatory for entities, with transaction prices typically lower.

As per current regulations in the Law on Corporate Income Tax, only income from the transfer of CERs is exempted from tax, while income from the transfer of VERs is not. Therefore, the Ministry of Finance suggests amending and supplementing provisions in the Law on Corporate Income Tax to comprehensively cover income from the transfer of various types of emission reduction certificates that qualify for tax exemption.

Based on these analyses, in the proposed amendment to Section 10 of Article 4 in the Law on Corporate Income Tax, the Ministry of Finance intends to make the amendment as follows: “Income from the transfer of CERs, transfer of carbon credits for the first time after issuance by businesses that have been issued with emission reduction certificates, carbon credits; income from interest on green bonds; income from the transfer of green bonds for the first time after issuance.”