MoF cool on income tax law despite NA heat

The law, to be based on the existing ordinance on personal income tax (PIT) for high income earners, will require an expansion in the scope of tax targets and taxed incomes, said Nguyen Thi Cuc, a deputy head of the General Department of Tax (GDT), and would therefore take a long time to draft.
“These [tax targets and taxed incomes] are such sensitive matters that we cannot develop them overnight,” Cuc said. “We need time to do thorough surveys nationwide in order to draft the law in the most proper way.”
“There is also a need to employ and train capable tax staff and establish a good tax-control system with modern machines and equipment in order to minimise tax avoidance and fraud,” Cuc said.
“Taking into account all aspects, we can say that the most appropriate time to develop the law and bring it into effect would be by the end of 2006 at the earliest, not 2004 as requested by the National Assembly.”
The ministry’s PIT amendments, of which the most dramatic change is the proposal to raise the tax threshold applied to Vietnamese nationals from $193 to $258, was submitted to the National Assembly early last month
However, the amendments were rejected by the National Assembly Standing Committee and the National Assembly requested the Ministry of Finance develop it into a PIT law by the end of this year.
“The threshold of just $258 is not logical,” said Nguyen Duc Kien, head of the National Assembly’s Economics and Budget Committee.
“The living standard and average income of Vietnamese will increase substantially within the next few years and by that time the threshold of $258 will be too low,” he said.
“Instead of having to introduce another amendment, why don’t we build a PIT law where both Vietnamese and foreigners are subject to the same threshold,” Kien said.
National Assembly chairman Nguyen Van An agreed, saying it was high time the government established a law to guide income tax.
But, the Ministry of Finance has sought National Assembly agreement to implement the draft amendments immediately.
In a concession to the National Assembly, Vietnam Investment Review learned that the Ministry of Finance will propose a new threshold tax at $322, $64 higher than the first amendment.
"This is the maximum we can do," said an official from the Ministry, "we are sorry that we cannot introduce the same tax threshold for Vietnamese and foreigners in the current context as there is still a big difference between the average income of Vietnamese and foreigners".
As a result of the non-approved PIT ordinance amendment and the delayed PIT law, Vietnamese employees will continue to be subject to an unequal tax threshhold against foreign employees.
The income tax threshold for a Vietnamese citizen, according to the current PIT ordinance, stands at VND3 million ($193) per month while for a foreign employee is VND8 million ($516).
Moreover, a Vietnamese person with a salary of more than VND15 million is subject to 50 per cent tax, plus a surtax of 30 per cent on anything above that figure.
“The low tax threshold and the relatively high tax rate for Vietnamese will make it cheaper for us to hire a foreigner even those from neighbouring countries like Thailand, Philippines or Indonesia,” Michael Frisby, US counsellor for commercial affairs told the local media recently.
Cuc of the GDT went further, saying that not only would Vietnamese employees lose opportunities to work for foreign companies at well-paid salaries but also the Vietnamese taxation sector would face a collection shortage
The amendments, if approved, would introduce several changes such as higher tax threshold for Vietnamese employees ($258), removal of the surtax of 30 per cent, removal of the discrimination between regular income tax such as salaries, allowances, bonuses and irregular income tax including lottery winnings and gifts in kind remitted.
The PIT law meanwhile will widen the income liable to tax to include also income from inheritance, income from capital investment like shares and stock interests.
Taxpayers will not only be individuals but also household businesses operating in all sectors who are currently subject to the corporate income tax.