PIT Law on the table to be fine-tuned
22/11/2011 09:18 am
Laws - Deductions and tax brackets are the burning issues for Vietnam as it looks to forge new personal income tax rules.
The Ministry of Finance’s Tax Policy Department last week started its process for amending and supplementing the Law on Personal Income Tax (PIT) by collecting opinions from experts and enterprises.
The government is expected to submit the revised law draft to the National Assembly for approval in October 2012.
Under the current PIT Law - which took effect on January 1, 2009 - the taxable income threshold kicks in at VND4 million ($193) per month for both local and foreign workers in Vietnam. Taxpayers can then deduct VND1.6 million ($77) for each dependent.
“Deductions from taxable income calculated by an absolute number are not reasonable and appropriate given increasing income and inflation,” said Vuong Thu Hien, head of the Financial Institute’s Tax Faculty.
Hien said the regulations made life easier in terms of tax management, but failed to ensure people’s basic needs were met in this current difficult economic situation.
Nguyen Van Toan, vice chairman of Vietnam’s Association of Foreign Invested Enterprises, suggested that the deduction from taxable income should be based on minimum wage of VND830,000 ($40) as was currently the case to ensure fairness.
The current PIT Law imposes seven tax levels. When taxable income is less than VND5 million per month, the PIT rate is 5 per cent. When monthly taxable income is between VND5 million and VND10 million ($241-$483), the tax rate goes up to 10 per cent. The highest tax rate is 35 per cent for monthly taxable income of over VND80 million ($3,864).
Hien said the highest tax rate of 35 per cent was higher than the current corporate income tax (CIT) of 25 per cent.
“This doesn’t match up with international common practices which often regulate the highest PIT rate at the same rate as the CIT rate to minimize tax evasion by [people] establishing a private enterprise to enjoy a lower tax rate,” said Hien.
“This would create unfairness in income distribution and among taxpayers. In addition, it would also lead to many foreign multinational companies paying their employees outside Vietnam’s territory which would decrease the number of foreigners paying tax in Vietnam,” she added.
Do Thi Thin, vice chairman of Vietnam Tax Consulting Association (VTCA), said most taxpayers with the highest taxable income of VND80 million were foreigners who would be subject a lower PIT rate in their countries. The difference between the lowest and highest taxable income brackets in Vietnam was lower than other regional countries’ at 16-fold (from VND60 million to VND960 million per year). The figures in Thailand and China are 50 times (from Baht80,000 to Baht4 million per year) and 200 times (from CNY500 to CNY100,000) respectively.
“Therefore, I suggest increasing the brackets among the tax levels of Vietnam up to 25 or 30 times,” Thin said.
The Ministry of Finance’s Tax Policy Department last week started its process for amending and supplementing the Law on Personal Income Tax (PIT) by collecting opinions from experts and enterprises.
The government is expected to submit the revised law draft to the National Assembly for approval in October 2012.
Under the current PIT Law - which took effect on January 1, 2009 - the taxable income threshold kicks in at VND4 million ($193) per month for both local and foreign workers in Vietnam. Taxpayers can then deduct VND1.6 million ($77) for each dependent.
“Deductions from taxable income calculated by an absolute number are not reasonable and appropriate given increasing income and inflation,” said Vuong Thu Hien, head of the Financial Institute’s Tax Faculty.
Hien said the regulations made life easier in terms of tax management, but failed to ensure people’s basic needs were met in this current difficult economic situation.
Nguyen Van Toan, vice chairman of Vietnam’s Association of Foreign Invested Enterprises, suggested that the deduction from taxable income should be based on minimum wage of VND830,000 ($40) as was currently the case to ensure fairness.
The current PIT Law imposes seven tax levels. When taxable income is less than VND5 million per month, the PIT rate is 5 per cent. When monthly taxable income is between VND5 million and VND10 million ($241-$483), the tax rate goes up to 10 per cent. The highest tax rate is 35 per cent for monthly taxable income of over VND80 million ($3,864).
Hien said the highest tax rate of 35 per cent was higher than the current corporate income tax (CIT) of 25 per cent.
“This doesn’t match up with international common practices which often regulate the highest PIT rate at the same rate as the CIT rate to minimize tax evasion by [people] establishing a private enterprise to enjoy a lower tax rate,” said Hien.
“This would create unfairness in income distribution and among taxpayers. In addition, it would also lead to many foreign multinational companies paying their employees outside Vietnam’s territory which would decrease the number of foreigners paying tax in Vietnam,” she added.
Do Thi Thin, vice chairman of Vietnam Tax Consulting Association (VTCA), said most taxpayers with the highest taxable income of VND80 million were foreigners who would be subject a lower PIT rate in their countries. The difference between the lowest and highest taxable income brackets in Vietnam was lower than other regional countries’ at 16-fold (from VND60 million to VND960 million per year). The figures in Thailand and China are 50 times (from Baht80,000 to Baht4 million per year) and 200 times (from CNY500 to CNY100,000) respectively.
“Therefore, I suggest increasing the brackets among the tax levels of Vietnam up to 25 or 30 times,” Thin said.
Source: VIR
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