Local-foreign workers on same PIT footing?

Under the current regulations stipulated in the Ordinance on High Income Earners Taxation, separate tax schemes are in operation for Vietnamese and foreign workers. The threshold for taxation on Vietnamese workers is VND5 million, while it is VND8 million for foreigners, and the tax rates vary depending on taxable incomes.
Quach Duc Phap, head of the MoF’s Tax Policy Department said that it was the right time to remove the discriminating policy treatment separating locals and foreigners because a level taxation playing field is one of the key requirements for Vietnam’s integration into the world economy. The tax discrimination policy is contrary to international practice, as nearly all countries in the world now apply a single tariff for both their citizens and expatriate workers, Phap said.
The current policy creates differences in duty payment, as well as affecting the business climate and the economy in the long run.
According to Phap, there are two ways to reach a single personal income tariff for both Vietnamese and foreigners. With the first, the adjustment would be taken step-by-step in order to achieve a unified tariff system, according to a medium and long-term plan. With the second option, the unified tariff system would be applied soon after the PIT law comes into effect at the beginning of 2008.
While the two solutions are still under discussion, Phap’s department is leaning towards the second method.
Phap said that the move would be an appropriate step in the current climate, while ensuring fairness and the creation of a level playing field for all individuals living and working in Vietnam.
If the second solution is approved, either the taxation threshold for Vietnamese workers will be raised, or the taxation threshold for foreigners will be lowered, to reach a common taxation rate.
Phap added that a special deductive regime would also need to be applied to foreigners to ensure fairness and encourage workers to come to Vietnam.
The details of the ‘special deductive regime’ have not been discussed. However, the regime may include personal deductions depending on a family’s condition, or expenses that can be deducted from the taxable income.
For example, taxation authorities may deduct isolated post-allowances when defining taxable income, or school fees for children, from a worker’s total earnings.
According to the General Department of Taxation (GDT), total tax collected from foreign residents in Vietnam has been increasing steadily.
In 2000 it accounted for 48.2 per cent of total PIT collection, and this figure rose to 62.4 per cent in 2003.
PIT collected is expected to reach VND4.1 trillion this year, VND600 billion higher than 2004, and well exceeding forecasts by experts, who said the sum would decrease as a result of the 2004 adjustment in tax rates.
Under the adjustments, tariffs for both Vietnamese and foreigners consist of five tax levels (from 0 per cent to 40 per cent), instead of six levels (from 0 per cent to 50 per cent).
Meanwhile, the threshold for taxation on Vietnamese workers has risen by VND2 million ($134) to VND5 million ($330).