According to the government’s draft resolution on deducting taxes based on dependents, deduction for taxpayers will be raised from VND9 million ($390) to VND11 million ($480) per month, while deduction for each dependent will be lifted from VND3.6 million ($160) to VND4.4 million ($190). The new deduction is expected to be applied for 2020 tax period, and will benefit about one million people.
Pham Dinh Thi, director at the Ministry of Finance’s (MoF) Tax Policy Department, told local media that the 2012 Law on Personal Income Tax (PIT) stipulates if the consumer price index (CPI) fluctuates more than 20 per cent, the government could ask the National Assembly Standing Committee to adjust the tax deduction level. In fact, the regulation is consistent with the current price fluctuations, thus the increase in tax deduction may be applied for the next tax period.
“That works like a routine reduction after seven years and based on the inflation rate, living standards and so one, hence it is quite dependent to the unprecedented explode of a virus,” economist Bui Ha Linh told VIR.
Increasing deduction for PIT would lower tax revenue significantly. The MoF estimates that if the proposal is implemented, the budget will reduce approximately VND10.3 trillion ($447.8 million) in annual revenue.
Experts believed the increase in PIT deduction would support distressed individuals who are on edge due to the economic fallout. Specifically, a foreign individual may be considered a tax resident of Vietnam if any he/she physically presents in Vietnam for at least 183 days, or has a permanent residential place here.
According to Nguyen Duc Nghia, chairman of the Ho Chi Minh City Tax Agent Club, the prolonged COVID-19 pandemic has driven most businesses into a tight corner, affecting their employees.
As the government has adopted policies to cushion businesses, it is also necessary to support these employees using the PIT vehicle. Such support, however, has not been recommended until present.
In addition, market watchdogs also stated that due regards should be paid to considering PIT reduction roadmap to be aligned with corporate income tax line, thus creating a level playing field between taxpayers.
Currently, lots of high-paid earners have dodged the law by setting up companies and created expenses which could later be deducted from taxable volume in order to scale down their tax payment. When penning policies, policymakers therefore need to base on the approach of “catching big fish” to feed income sources.
“It is unfair for the government to say that there has not been any relief measures for individual taxpayers because the social welfare package of VND62 trillion ($2.6 billion) has touched the vulnerable, including some taxpayers,” Linh said.
On the other hand, competent authorities should fasten the process to reduce tax for individuals. The arrival of COVID-19 with instability of economy is ahead concern when setting up family-circumstance based scheme.
Frederick Burke, principal at Baker McKenzie Vietnam, told VIR that while tax collections overall have been going down recently due to the impact of the crisis, PIT collections have actually gone up. This may be because of the strong pre-pandemic economy and the increase in personal income following it.
“Whatever the reason, since PIT is collected from employers who usually withhold the tax from salaries, it usually means that the taxpayer has a job and can afford the tax. However, there are some exceptions,” said Burke. “His or her family members may have lost a job in the informal economy so they have no unemployment insurance and rely on the taxpayer to support him or her. For this, a dependent tax credit could be increased.”
“We are fighting to the pandemic which are not known about its ends, so besides remaining national budget stable as the resources for fighting the unexpected, government should also consider strong strategies as the way they did to cope with the crisis,” said Linh. “Tax reduction in few months could be a wisdom choice at this moment: save each individual means rescuing the whole economies.”
Notable proposed tax changes
Certain taxpayers may be allowed to extend the payment deadlines for VAT and personal income tax (PIT). Eligible taxpayers will be granted a five-month extension for VAT payment as follows:
– Where taxpayers declare and pay VAT on a monthly basis: the five-month extension of VAT payment deadline shall be applied for VAT payable of March, April, May and June 2020.
– Where taxpayers declare and pay VAT on a quarterly basis: the five-month extension of VAT payment deadline shall be applied for VAT payable of the first and second quarters of 2020.
– The above five-month payment extension shall be applied from the day after the VAT payment deadline.
– Taxpayers are still required to declare and submit tax returns by the statutory deadlines extended due date up to December 15, 2020 for VAT and PIT payments for business individuals, group of business individuals, and household business individuals.
Suspension of social insurance payments: The prime minister requested suspension of payments of social insurance for those who are affected by the pandemic until either the end of June or December without interest charges for late payments.
E-invoicing: the proposed deadline for implementation of compulsory e-invoicing will be extended to July 2022, from the current deadline of November 2020.
Vietnam Investment Review