PIT thresholds adjusted

A representative of the Ministry of Finance (MoF)’s Tax Policy Department said a document had been sent to enterprises and local tax authorities on entanglements when implementing the PIT Law, which is set to be summarised in late January, 2011.

“After considering the entanglements, the MoF will propose a draft decree to amend, if under the government’s jurisdiction, and a bill if under the National Assembly (NA)’s jurisdiction,” said the MoF representative.

The MoF’s proposal to amend the PIT Law comes from rising inflation up to 11.75 per cent in 2010, which made the taxable income threshold and deductions from taxable income unreasonable and outdated in consideration of the current economic climate.

The PIT Law was drawn up by the government in 2005 to replace the ordinance on high-income earners and approved by the NA in late 2007. It came into effect on January 1, 2009.

Under the law, the taxable income threshold begin at VND4 million ($200) per month for both local and foreign workers in Vietnam. It allows taxpayers to deduct VND1.6 million ($80) for each dependant.

“It will be unfavourable for taxpayers if such thresholds and deductions are applied in the current situation of high inflation”, said Dr. Dinh The Hien, a finance and investment expert, who also said that while the PIT Law targeted employees, their salaries had not been raised in accordance with the hikes in consumer prices.

“Moreover, the rate of VND1.6 million per month is not enough for parents to cover tuition fees as well as other living costs for each child,” added Hien.

A Vietnam Accounting and Auditing Association’s representative also said current law creates difficulties for taxpayers, especially foreigners.

“Foreigners’ income is often high at about several thousands of US dollars, which will be applied the high PIT tax rate. If the PIT rate is unchanged, it will be hard to attract foreigners to work in Vietnam.”

Nguyen Thi Cuc, chairwoman of Vietnam Taxation Consultant Association and former deputy director of General Department of Taxation, said that law drafters considered the inflation and wage hike, however, with such current high inflation rate, it was necessary to decrease the PIT rate to better suit taxpayers.

She recommended that the tax rate should be 10 per cent when the monthly taxable income was between VND5 million to 30 million ($250-$1,500), 20 per cent for VND30 million to VND60 million ($1,500-$3,000).

The current PIT Law has seven tax levels. When taxable income is less than VND5 million per month, PIT rate is 5 per cent. When monthly taxable income is between VND5 million and VND10 million ($250-$500), the tax rate goes up to 10 per cent. The highest rate is 35 per cent for monthly taxable income of over VND80 million ($4,000).