Tax incentives to push foreign firms to recruit locally

If approved by the government, the amended Ordinance on Personal Income Tax for High Income Earners would come into effect early next year. Business leaders see the proposal as a good reason for foreign businesses to recruit more Vietnamese staff.
The income tax threshold for Vietnamese employees currently stands at VND3 million ($195), which discourages companies from paying their staff high salaries.
Foreign employees, on the other hand, can earn up to VND8 million ($516) without being taxed.
“Such a low tax threshold for Vietnamese and the big gap for foreigners explains why we prefer to hire foreigners as it is cheaper for us,” said Juan Ricardo Rothe, chief representative of Siemens AG Vietnam.
Nguyen Thi Cuc, deputy director of the General Department of Taxation, confirmed it had proposed the new income tax threshold and a raft of other amendments in favour of Vietnamese employees.
The gaps between taxable incomes for each tax rate will widen, she said. The surtax of 30 per cent that employees currently have to pay if their after-tax income exceeds VND15 million ($967) will be eliminated. The highest tax rate of 50 per cent will also be removed.
The department estimates that the increase in the tax threshold would lead to a drop of roughly VND300 billion ($19.3million) in annual budget revenues.
However, it expects that the amount will be recouped through other proposed tax changes, such as taxes on income derived from the transfer of land use rights and on irregular incomes that fall outside the current tax system.
The proposed amendment also includes an elimination of the discrimination between regular taxable income like salaries, allowances, bonuses and irregular taxable income like gifts, lottery winnings, transfer.
“Some incomes are difficult to classify as regular or irregular such as commission, money for science research,” an MoF official said.
“It is suggested that all of these incomes should be put under a group so called ‘labour income’. All of the amendments aim at creating a more properly regulated tax system,” the official said.