Personal Income Tax Law: Efforts to Integrate

The instructive viewpoint of this law is to reasonably regulate personal incomes. The tax is only levied on persons with above average incomes but it also considers family situations of taxpayers, Nguyen Thi Cuc, Deputy General Director of General Department of Taxation.

 

The taxed income will be regulated by rate. For example, a person with a monthly income of VND10 million (US$625) is taxed 10 per cent but according to this bill he/she only needs to pay a 5 per cent tax. Besides, million of business households shall pay tax if their individual incomes exceed VND4 million instead of the current amount of VND450,000. This is aimed to ensure equality and to encourage the people to enrich themselves.

There will be a deductive amount for taxpayer’s dependants, but less than VND10 million a month, before paying tax. According to Ms Cuc, the introduction and application of personal income tax is now suitable with the Vietnamese situations and conforming to international common practices. The draft law specifies individuals will have a deduction as a family allowance before being taxed.

 

The deductive amount for the taxpayer is the initial taxable income of VND4 million or 5 million. As for the dependant people, the deductive amount is 50 per cent of the initial taxable income for disabled people, 40 per cent for people aged less than 18, and 30 per cent for other kinds of dependants.

 

Regarding the deduction of VND4 million a month, if the earner who must feed two dependants aged under 18 has a monthly income of VND10 million, the taxable income is VND2.8 million after the earner is allowed to set aside VND4 million to feed himself/herself and VND3.2 million to rear his two dependants. With the planned tax rate, the tax amount is only VND180,000 a month (The current amount is VND500,000.

 

The Deputy Minister of Finance Truong Chi Trung admitted the family deduction is the most complicated point of the compiling division of the Personal Income Tax Law. At present, taxation authorities only base on salaries and pays. Hence, when the new Personal Income Tax takes effect, all individuals must have tax codes. If they ignore tax code registration and taxpaying declaration, they will commit the law. This is the only tool to manage and collect enough taxes.

 

Another new point of the bill on taxable income is to regulate incomes from bank interests on savings deposits. A VND4-5 million interest from bank deposits (or a rough VND700-million deposit) is taxable. According to Cuc, this will ensure equality for other individuals. However, if the interest earning is less than VND4 million a month, it is tax-free. For example, if a person has a bank deposit of up to VND600 million and the interest is VND3.9 million a month, he/she is not a taxpayer. If the deposit is over VND800 million and the interest is VND5.2 million, the tax is only VND60,000 a month.

 

Regarding the tax levied on earnings from inheritance and gifts, according to Cuc, this regulation is aimed to control assets movements and ensure social equality. Further, this is also aimed to encourage people to work to feed themselves. As known, other countries levied a very high tax rate on this kind of earnings.

 

Many said the time from now till January 1, 2009 is quite long. The price will change very much and the living standards of the people will be higher. They wonder this taxable amount of incomes is suitable. Mr. Vu Van Ninh said the tax rate calculation is based on the General Statistics Office’s price statistics and sociological survey results on earnings and expenditures of all social classes. The rate is also based on the growth index forecast until 2009-2010.

 

Another public concern is whether the complicated tax calculation bothers the people. Ninh admitted that the taxation sector must add more efforts, and apply new technologies and experience from other countries to Vietnam.

 

The General Department of Taxation admitted the implementation of this law is an uneasy experience for taxpayers as they have to self-declare incomes before the tax authorities. The tax payment by cash is still very popular and the earnings from gifts and inheritances remain hard to control. Hence, it takes about two years to take effect since the National Assembly passes.

 

Level	Monthly taxable income (million dong)	Tax rate (per cent)
1	4	0
2	>4-6	5
3	>6-9	10
4	>9-14	15
5	>14-24	20
6	>24-44	25
7	>44-84	30
8	>84	35

 

 

Sources of income	Taxable income (million dong/month)	Tax rate ( per cent)
Lending interest, share dividend, capital contribution and deposit interest	>5	5
Capital transfer		25
Property transfer		25
Copyright transfer	>10	5
Lottery, promotion awards	>10	10
Inheritance, gifts	>10	10