Tax bill may stir up foreign opposition

The bill will make both Vietnamese nationals and foreigners who earn more than VND4 million ($250) per month liable to pay a 5 per cent income tax.
The new law will create eight personal income tax (PIT) brackets, ranging from 0 per cent to 35 per cent.
Deputy finance minister Truong Chi Trung said the bill will remove the existing discrimination between foreigners and Vietnamese. Under the current tax regime, foreigners who earn more than VND8 million ($500) per month and nationals who earn over VND5 million ($310) are subject to the lowest tax rate of 10 per cent.
Warrick A Cleine, managing partner at KPMG Vietnam, said: “Under the




proposed changes, although the top rate may drop, it appears that some foreigners will suffer higher taxes because of the change in the tax brackets.”
“This is a concern, as the demand for foreign expertise in emerging sectors is very high at present because of Vietnam’s economic development and WTO-related reforms,” he said.
The higher taxes could “increase employment costs, and reduce Vietnam’s competitiveness compared to other countries.”
“The overall trend of aligning Vietnamese and foreign PIT rates and tax brackets has been forecast for a long time,” he said. “[This] is a natural consequence of Vietnam’s pending entry into the WTO and rapid economic development, as it isn’t appropriate to distinguish between taxpayers based on nationality.”
Trung said that for the first time, the bill introduces the concept of deductions from taxable income, including deductions for dependents such as children below 18 years old, parents and the disabled.
“The bill recognises the individual circumstances of taxpayers through a system of personal allowances. This allows taxpayers with dependents to pay less tax,” Cleine said.
“The special circumstances of foreign experts coming to Vietnam, especially in areas such as housing, relocation costs and children’s education, will continue to be recognised in the same way,” he said.
“These costs are higher for people who are required to move to Vietnam for their job, and the tax system should continue to recognise these special circumstances in the same way it does at present,” he said.
“Taxes paid by some high-income-earning Vietnamese may drop, depending on their personal circumstances,” Cleine said.
“This is a far more important and positive development, as it will reduce employment costs in some cases, increase opportunities for Vietnamese to move into high positions, and encourage people to strive for promotions through hard work and the pursuit of education,” he said.
“High taxes can demotivate people and encourage them to work outside the formal, taxpaying economy,” he said. “The new law, provided it is uniformly applied, should encourage more people into the tax system.”
Trung said that the ministry would seek public comment on the bill before submitting it to the National Assembly in 2007. The finalised law would take effect in January 2009.
“The government will have a big challenge to educate taxpayers and encourage them to comply with the new regime, and is likely to penalise those who don’t,” Cleine said.
“The relatively high proportion of personal income tax collected from foreigners and foreign-invested enterprises now shows that this sector has a good track record of complying with Vietnam’s tax laws,” he said.
Trung said about VND5.300 trillion ($320 million) of PIT would be collected from high-income earners this year, and the number will reach at a higher level when the new regime is applied.





No. 778/September 11-17, 2006