7/30/2019 bai nhom

1/5

Definition

- Personal income tax (PIC) is the direct tax levied upon real income of anindividual periodically such as annually or monthly to contribute to the budget

irrespective of occupation and social statue. Basing on the characteristics,

income is classified as regular income and irregular income so that each kind of

income can have a suitable tax method.

- Personal tax was first invented in England in 1799 as a contemporary means tosupport the war between the country and France and in 1942 it was officially

legislated. Later on, many countries followed England and adopted this tax such

as Japan (1887), Germany (1899), USA (1903), France (1916) and Soviet Union

(1922). According to a statistic by ERNST & YOUNG there are more than 136

countries applying PIC in the world.

- Due to the WTO participation and the global integration, reduction in importand export tax is unavoidable. With the development of our country, PIC

revenue is on the increasing and becoming one of the most important sources of

revenue for the Governments budget.

History of Personal Income Tax

- PIC was first applied in Vietnam in 1991, but throughout 22 years, it onlyaccounts for about 2% of the total Governments revenue.

YEARTOTAL

GOVERNMENT

'S REVUE

PERSONALINCOME

TAX

REVENUE

PERCENTAGE

(%)

2002 123.860 2338 1,89

2003 152.274 2951 1,94

2004 190.928 3521 1,84

2005 228.287 4234 1,85

2006 279.472 5179 1,85

2007 315.915 7422 2,35

2008 416.783 12940 3,10

2009 442.340 14329 3,24

2010 558.158 26288 4,71

- According to the table we can see that the total revenue obtained from PersonalIncome Tax is still low comparing with the average percentage of about 40%-50%

7/30/2019 bai nhom

2/5

of other countries (America: 45%, UK: 33%, Japan: 40%...). However, on the

bright side, the amount of PIC in the national budget has increased gradually

comparing to the 63 billion VND in 1991 (0.63%).

- During 22 years, the threshold for tax payer has been adjusted 5 times,increasing from 500.000 VND/month (in 1991) to 5.000.000 VND/month . Theapplicable tax rate is also reduced from 80% to 72%, then to 65%, 40% and 35%

as stipulated in the current Personal Income Tax Law.

- Throughout the world, average Personal Income Tax in ASEAN: 5-10%, indeveloped countries is 15-16% and some countries for example England,

America is 30-40%, we can see that our tax rate is still high.

Characteristic of Personal Income tax

- Personal tax income is an obligation stipulated by law.- Personal income tax is one-sided contribution, the tax payer cannot expect

service in return by offered by the Government.

- Personal tax income is a direct tax: the tax payer is also the one who suffers thetax burden.

- Personal tax income has a wide coverage including all individual with incomewithin the nation territory: permanent resident, foreigners who regular or

irregular reside in Vietnam

- Personal tax income is calculated based on progressive method for the purposeof equity in the society: the richer people are the more they have to pay.

Purpose of Personal Income tax

To the economy and society

- The most important and salient purpose of personal income tax in specific andtax in general is to generate budget for public service and operation as well as

maintaining equity in the society.

- To regulate the economy: the tax rate will directly affect the saving andspending habit of an individual, therefore, the production activity within the

economy will be affected.- To identify illegal income: personal tax income can help the authority to trace

out money laundering, corruption, smuggling or tax evasion

To the tax system

7/30/2019 bai nhom

3/5

- To complement some weakness of other taxes: Some indirect taxes such asVAT, excise tax have weakness of regressive tax calculation, thus the tax

burden is borne more by the poor than on the rich for example tax will be the

same when people consuming the same kind of tax without concerning about

income.- To reduce the loss of corporate tax: There is always a close relationship between

personal income tax and the corporate income tax. When the corporation and its

employee conspire to boost the salaries to reduce the taxable income for tax

avoidance purpose, the personal tax income will make up the loss by levying tax

on such increased income.

Some improvement in Personal Income Tax

- Comparing to the Decree 100/2008/N-CP the Decree 65/2013/N-CP hasmade the following amendments

Appli cable enti ties

- Increase the counting period from 90 to 183 days in considering residenceperiod (b,2, Article 2, Chapter 1). However, foreigners who lodge in Vietnam

under 183 days but cannot prove the identity will be considered as residing in

Vietnam.

Taxable income

- Supplement some regulation about allowances, subsidies which are eligible forexemption such as allowances for medical purpose transferred from employer to

the workers and workers relatives (spouse, parents, children), subsidies for

round-trip airplane ticket for people working abroad or for foreigner working in

Vietnam to visit their home countries one a year, subsidies for tuition fee from

nursery to high school for children of Vietnamese employee working abroad (b,

2, Article 3, Chapter 1). Previously the Circular 62/2009/TT-BTC only allowed

exemption for tuition fee at high school level.

- Adding 10% tax rate to the amount of accumulated insurance and voluntarypension fund (d, 2, Article 3, Chapter 1).

- Authorization of land or assets: if the authorized parties can have the right totransfer assets or having the same right as in the asset transfer relationship, the

authorization will be considered transferring of assets

I ncome which is tax exempt

7/30/2019 bai nhom

4/5

- Supplementing the requirement of owing only one residential house orresidential land block, income from transfer of right to use residential land and

the assets attached to the second land will also be exempted from taxable

income if only individual possesses the second land for a period shorter than

183 days (2, Article 4, Chapter 1).- For residential house, construction which are under constructed: transferring,

inheriting of receiving gift of such assets from relatives are also exempted. (1,

Article 4, Chapter 1)

- Income paid by voluntary or foreign Pension Fund is exempted from tax (10,Article 4, Chapter 1)

- Income being scholarship: scholarship for subsistence expenses are exemptedfrom tax (11, Article 4, Chapter 1)

Tax deduction

- For insurance expenses: premium paid to voluntary unemployment insurance orPension fund is deductible from assessable income, the maximum level for

deduction is 1 million/month, 12 million/year (1, Article 21, Section 1, Chapter

II)

- Deduction for family circumstances: the deduction for family circumstances isincreased from 4 million/month to 9 million/month (108 million/year); the

deduction level for each dependant increase to 3.6 million/month.

The income to identify dependant is increase from 500.000 to 1.000.000 (Article

19, Section 1, Chapter II)

- Dependant: dependants can be offspring, stepchild, offspring over 18 years oldbut still studying at high school, step father, step mother, legal foster father,

legal foster mother.

Tax rate

- Tax rate applicable to transfer of stock ownership to 20%For taxable income winn ing from Casino

- On the condition that the organization, casino cannot assess the income of thewinning party for tax deduction purpose, the Casino will pay the tax

proportionally to the amount of the prize comparing to the total prize on behalf

of the winning party.

Implementing and controlli ng Personal I ncome Tax

7/30/2019 bai nhom

5/5

- Register tax: Individuals have to register to get the tax code from tax authorityfor themselves and for tax dependant.

Thus, the amendment of Personal Income tax represents the respect of

Government to the citizens opinion, increases transparence of tax system,reduces bureaucratic procedures and advances quality, effectiveness of Tax

controlling authority.

Some weakness of Personal I ncome Tax

- PIC only accounts for a small proportion of the national budget. This factundermines the role of this tax in the Governments policy, contrary to the

world trend.

- PIC does not protect equity in distribution income in the economy: PIC stipulatethe discrimination of tax payer between Vietnamese tax payer and foreigners-the threshold for beginning paying tax is different, and the difference is

profitable for the foreigners. This regulation is not in accordance with the world

standard and is unfair as Vietnamese and foreigners are all tax payers.

- Nowadays, personal income usually comes from human labor, business activity,direct and indirect investment, asset transfer..Among them, income from

human labour, business activity, and asset transfer all have different tax rates.

Personal income from indirect investment such as interest on deposit, yield on

Governments bond is still exempted from tax, while income from transfer asset

(stock or real estate) does not belong to taxable object. This reality raises thequestion of equity, effectiveness in executing PIC in Vietnam.

- The maximum tax rate of 35% is not encouraging enough to stimulate highqualified people participating into our workforce. Many countries in the world

has tried hard to cut tax to attract investment and labour such as Indonesia,

Malaysia, Singapore, Czech RepublicEspecially some countries have replace

progressive tax system with flat tax rate: Russia 13%, Czech 15% and Bulgaria

10%. Therefore, abolishing 35% tax rate and retain only 6 scale for calculating

tax is worth considering.

- Comparing to the Corporate tax rate of 25% the PIC tax rate is quite high, thiswill have some bad effect on the economy.