Efforts for simpler tax payment from 2015

Nguyen Thi Hanh, head of the General Department of Taxation’s Personal Income Tax Management Division

From this year, individuals involved in property and stock transfer are obliged to pay personal income tax (PIT) that is set based on the transfer value only, instead of having two options as per previous practice. Why is this?

The method of PIT calculation through imposing the tax rate of 25 per cent on the disparity between buying and selling prices had proven unrealistic because it was, in fact, extremely hard to define buying and selling prices as well as relevant expenses. In most property deals the parties use cash. Therefore, the determination of taxable income wholly depends on tax-payer honesty, leading to lack of transparency and impartiality.

According to this practice, starting from January 1, 2015, in light of the amended tax law the individuals engaged in property transfer will pay PIT tantamount to 2 per cent of the property deals’ transfer value.

What’s about stock transfers?

Since 2009, individuals involved in stock transfer had two options in paying PIT: 20 per cent of the disparity or 0.1 per cent of the transfer value. The first option, similarly to the case above, had proven very difficult to trace, particularly in setting the buying and selling price of unlisted stock or those in negotiated transactions.

Therefore, like the new regulations on property transfer, from this year individuals engaged in stock transfer only pay PIT tantamount to 0.1 per cent of transfer value to ensure simplicity and transparency.

Will this cast a big impact on tax payers?

There certainly will be an impact, but not much. Specifically, during 2012-2013 about VND269 billion ($12.8 million) PIT tax from stock transfer was paid to state coffers, but only 13 cases paid their PIT based on the 20 per cent rate. Similarly, in the past two years, of the VND7.201 trillion ($342 million) PIT tax raised from property transfer only 2 per cent (145 cases) was paid at the 25 per cent tax rate.

From this year, family businesses and individuals having annual revenues higher than VND100 million ($4,670) will have to pay PIT tax. Could you shine further light on this new move?

In previous practice, PIT for family businesses and trading households was set based on taxable income (after setting aside deductive amounts for taxpayer dependants ), which was then multiplied by the respective rates of the standard international progressive tax tariff. It was to ensure impartiality in tax payment.

However, this method had proven unrealistic because the scope of doing business as well as awareness about the legal system of local trading households remain low, making it difficult for them to handle tax procedures.

Following the new regulations, only trading households having an annual revenue above VND100 million ($4,670) are obliged to pay PIT which will be set by multiplying their revenue with respective tax rates ranging from 0.5 per cent to 5 per cent, depending on each area.

How are these new rates set?

These rates are set based on the two following principles:

First, it is based on the corporate income tax currently applied to businesses in the same field. In fact, the production and business follow similar patterns in trading households and businesses; therefore tax policies applied to trading households also need to have similarities, e.g. in setting the taxable minimum revenue and operational costs, to those applied to businesses.

Second, it also takes into account deduction parts for taxpayer dependants. Specifically, deduction amounts for taxpayer dependants would also be taken into account when setting taxable income for PIT calculation of family businesses and trading households.