Adjustment Contents on Income Tax Rates and Tax Incentives

Expenses for self-comparison and declaration; but the disadvantage is that in practice the economy is operating according to the market mechanism, the activities of enterprises are multi-industry and multi-field, more and more new expenses are arising that are not included in the list of deductible expenses but also not included in the list of non-deductible expenses according to regulations, leading to different understanding and application between enterprises and state management agencies (audit, inspection, tax). To overcome this limitation, ensure clarity, transparency, facilitate enterprises to be proactive in business accounting, effectively implement the mechanism of self-declaration, self-payment, self-determination of tax obligations according to the provisions of the Law on Tax Administration, the amended Law on Corporate Income Tax has stipulated the conditions for determining deductible expenses and specifically listed non-deductible expenses. Expenses that are not listed are of course included in deductible expenses when determining taxable income. The corporate income tax policy has specifically stipulated 34 non-deductible expenses, including clearly stating that the original price exceeding VND 1.6 billion/car with less than 10 seats, fixed assets such as civil aircraft, yachts cannot be depreciated (except for the purpose of passenger transport, tourism, and hotel business). Regarding funding expenses other than education funding as previously stipulated, which are non-deductible expenses when calculating corporate income tax, this law has added a provision excluding funding expenses for healthcare, funding expenses for overcoming the consequences of natural disasters, and funding expenses for building charity houses for the poor.

For organizations with undistributed income, deductible expenses, in addition to expenses related to economic activities generating income, also include expenses for activities according to charitable and social goals and principles stated in the organization's charter that have been recognized by law.

- Adjust personal income tax deductions.

Compared to the Ordinance on Taxes for High-Income Earners, the Law on Personal Income Tax has added provisions on deductions when determining taxable income for income from business, salary, and wages of resident individuals. Accordingly, this taxable income is determined by: total taxable income minus social insurance, health insurance, professional liability insurance for certain industries and occupations that must participate in compulsory insurance and deductions (family deductions and deductions for charitable and humanitarian contributions).

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The Law on Personal Income Tax also stipulates that allowances and subsidies are deducted from income. In principle, these allowances must be calculated in accordance with the regulations of the Ministry of Labor and other specialized agencies. In cases where there are no specific regulations on allowances and subsidies, the prescribed allowances and subsidies for the State sector shall be used as the basis for deduction. Cases where higher allowances and subsidies are paid must be included in taxable income. For other material benefits that must be included in taxable income: Expenses that are determined to be directly enjoyed by an individual, such as golf course cards, tennis cards with a personal name or assigned to an individual for use, shall be included in the income of the individual in whose name or who uses them. For income from business, income from salaries and wages shall be deducted from mandatory contributions as prescribed such as social insurance, health insurance and family allowances before calculating tax.

2.2.2.3. Adjustment content on income tax rates and tax incentives

- Adjustment of tax rates for corporate income tax.

+ Period from 2007 to 2008: Adjusted to apply a uniform general tax rate of 28% for all types of enterprises (except for the oil and gas sector, the tax rate is from 28% to 50%) instead of the previous tax rate of 32% applied to domestic enterprises and 25% applied to enterprises with foreign investment capital, at the same time abolished the additional income tax applied to domestic enterprises with high profit margins; abolished the tax on transferring profits abroad (3%, 5%, 7%) applied to foreign investors.

+ From 2009 to present: The Corporate Income Tax Law has adjusted the tax rate from 28% to 25%. Due to the impact of globalization, competition to attract foreign investment among countries is increasingly fierce, countries around the world and in the region are focusing on implementing measures to improve the investment environment, in which corporate income tax is one of the main tools and solutions. International trends show that many countries are shifting from providing incentives for many industries and fields to providing broad incentives, encouraging the overall economy with reasonable corporate income tax regulation policies (lowering tax rates), only focusing on incentives to develop a very few key industries and particularly difficult areas. For example, China, along with lowering the corporate income tax rate from 33% to 25%, has eliminated most tax incentives according to the 5-year roadmap, including incentives previously granted to foreign-invested enterprises. For the field, China

The country only gives priority to enterprises with high technology and new technology; for localities, there are only tax incentives for enterprises investing in autonomous regions and disadvantaged areas in the West; Malaysia has lowered the corporate income tax rate from 32% to 28%; the Philippines has also reduced it from 35% to 30%.

Therefore, to encourage the overall economy, facilitate the business community to have conditions to increase accumulation, accumulation, more resources to invest in developing production and business and also increase competitiveness with countries in the region, the corporate income tax rate has been adjusted down to 25% along with tax incentive reform.

- Adjustment of tax rates for personal income tax:

+ According to the 2004 Ordinance amending the Ordinance on Income Tax for High-Income Earners, with regular income, there is a distinction between Vietnamese citizens, other individuals residing in Vietnam (referred to as Vietnamese) and foreigners residing in Vietnam and Vietnamese citizens working and working abroad (referred to as foreigners). Accordingly, each group of taxpayers has its own tax rate according to the progressive tax schedule.

+ The 2007 Law on Personal Income Tax stipulates a progressive tax schedule and a general total tax schedule for resident individuals and specific tax rates for each type of income for non-resident individuals for both Vietnamese and foreigners. This shows that the adjustment of Vietnam's personal income tax rate in 2007 has been carried out in accordance with the WTO's principle of non-discrimination.

- From 2007 - 2008:

+ Since Vietnam became a WTO member in January 2007, Vietnam has abolished corporate income tax incentives for enterprises producing textile and garment products for export. For other enterprises with export activities other than textile and garment products, they will continue to retain their current incentives for another 5 years. Accordingly, enterprises operating in the textile and garment sector, enterprises are entitled to incentives due to the use of domestic raw materials if they meet other preferential conditions for corporate income tax (in addition to preferential conditions due to meeting conditions on export ratio, due to the use of domestic raw materials) such as: production in the zone

industrial parks, export processing zones; implemented in areas with difficult or especially difficult socio-economic conditions on the List of investment incentive areas; employing a large number of workers... will continue to enjoy corporate income tax incentives corresponding to the conditions the enterprise has met for the remaining incentive period. Enterprises are allowed to choose the option to continue receiving tax incentives and notify the tax authority according to one of the following two options:

Option 1: Continue to enjoy corporate income tax incentives corresponding to the conditions that the enterprise meets (in addition to the preferential conditions due to meeting the conditions on export ratio and using domestic raw materials) for the remaining preferential period according to the provisions of previous legal documents on corporate income tax at the time of being granted the establishment license;

Option 2: Continue to enjoy corporate income tax incentives corresponding to the conditions that the enterprise meets (in addition to the preferential conditions due to meeting the conditions on export ratio and using domestic raw materials) for the remaining preferential period according to the provisions of previous legal documents on corporate income tax at the time of adjustment due to WTO commitments (January 11, 2007).

+ For enterprises with expansion investment, they will continue to enjoy investment incentives for expansion investment projects, but will only enjoy incentives on tax exemption and reduction periods depending on each industry, field, and location that meets the list of investment incentives, and will not enjoy incentives on corporate income tax rates that the enterprise is currently enjoying.

- Period from 2009 to present:

+ Before 2009, CIT had stipulated three (03) preferential tax rates of 10%, 15% and 20% applied for a period of 15 years, 12 years and 10 years respectively from the date of commencement of business; At the same time, it stipulated a maximum tax exemption period of 4 years from the date of taxable income, a 50% reduction in the maximum tax payable for the next 9 years depending on many criteria of industries, fields and preferential locations according to the provisions of the law on investment. CIT preferential policies have had a positive effect in improving the investment environment in the first years of issuance. However, in the face of economic and social development, these preferential policies have increasingly revealed the disadvantages of being spread out and complicated; not meeting the requirements as a tool.

Allocate resources for economic development by region and territory, especially in areas with particularly difficult socio-economic conditions. Due to the incentives being spread across both industries, sectors and localities, investors, especially foreign investors, mainly focus on industrial parks, export processing zones or favorable locations in Ho Chi Minh City, Hanoi, Hai Phong, Dong Nai, Binh Duong, Ba Ria Vung Tau, Vinh Phuc, Hai Duong, Hung Yen, Bac Ninh.

Since 2009, to overcome the spread and complexity, ensuring that tax incentives are effective as a tool to create changes in the allocation of resources to encourage investment in areas with particularly difficult socio-economic conditions and a number of important sectors and fields according to the State's development policy, the amended Law on Corporate Income Tax has reformed tax incentives according to the principle of maintaining the highest tax incentive level so as not to affect the investment environment but maintaining a large enough difference compared to lower incentives; narrowing the scope of incentives by industry and field to create the attractiveness of high incentives, specifically as follows:

 Apply the highest preferential rate on corporate income tax (10% tax rate for 15 years and maximum tax exemption for 4 years, 50% tax reduction for the next 9 years) for newly established enterprises operating in areas with particularly difficult socio-economic conditions; newly established enterprises operating in key areas including: high technology, research and development, areas being encouraged to promote socialization (education - training, health, culture - arts, sports) and environmental protection. For special cases, a 10% tax rate can be enjoyed for a longer period according to Government regulations.

 Apply a tax rate of 20% for 10 years, tax exemption for up to 2 years and 50% reduction for up to 4 subsequent years for newly established enterprises operating in areas with difficult socio-economic conditions as at present. At the same time, remove the tax rate of 15%, the current tax rate mainly applied to projects in the investment encouragement sector implemented in areas with difficult socio-economic conditions, to both simplify and create the attractiveness of the 10% and 20% incentives as mentioned above.

 Cases of expansion investment and in-depth investment will be depreciated faster than the normal rate instead of the current tax reduction to ensure feasibility and transparency.

The tax incentive calculation period begins in the first year of income generation but not later than 3 years from the date of revenue generation.

+ Corporate income tax also provides incentives for all enterprises: up to 10% of pre-tax income is deducted annually to establish a science and technology development fund, as stipulated in Article 45 of the Law on Technology Transfer to facilitate and encourage enterprises to proactively invest in development, application of new technology, and equipment innovation.

+ On December 27, 2011, the Government issued Decree No. 122/2011/ND-CP amending and supplementing a number of articles of Decree No. 124/2008/ND-CP of the Government detailing and guiding the implementation of a number of articles of the Law on Corporate Income Tax.

Article 2, Clause 2 of Decree No. 122/2011/ND-CP stipulates: “Enterprises that are enjoying corporate income tax incentives due to meeting the conditions for export rate incentives but have their corporate income tax incentives terminated from January 1, 2012 due to implementing WTO commitments may choose to continue enjoying tax incentives for the remaining incentive period corresponding to the actual conditions of the enterprise meeting investment incentives (in addition to the preferential conditions due to meeting the conditions for export rate incentives, due to using domestic raw materials) as prescribed in legal documents on corporate income tax during the period from the date the enterprise is granted an establishment license to before the effective date of Decree No. 24/2007/ND-CP dated February 14, 2007 of the Government detailing the implementation of the Law on Corporate Income Tax or as prescribed in legal documents on income tax. Enterprises at the time of adjustment of tax incentives due to implementation of WTO commitments (end of December 31, 2011).

Enterprises are responsible for notifying the Tax authority of their choice to enjoy tax incentives prescribed in this clause".

The termination of incentives due to meeting the export ratio conditions according to Vietnam's WTO commitments is divided into 2 stages:

Phase 1: Ending incentives for enterprises meeting the conditions according to the export ratio operating in the textile and garment sector, due to the use of domestic raw materials (November 1, 2007);

Phase 2: End incentives for enterprises meeting conditions based on export ratio (except for activities in the textile and garment sector) (December 31, 2011).

For phase 2, Decree No. 122/2011/ND-CP stipulates: enterprises whose incentives are terminated under the conditions on export ratio can choose to continue enjoying tax incentives for the remaining incentive period (in addition to the conditions on export ratio) according to legal documents on corporate income tax with the actual conditions that the enterprise meets during the period from the date the enterprise is granted an establishment license to before the effective date of Decree No. 24/2007/ND-CP dated February 14, 2007 or at the time of adjustment of tax incentives due to implementation of WTO commitments (ending December 31, 2011).

Thus, according to the provisions of Decree No. 122 mentioned above, enterprises whose export rate incentives are terminated (after December 31, 2011) can choose more favorable incentives than textile and garment enterprises that meet the export rate conditions (end of incentives from November 1, 2007). Based on the provisions of Decree No. 122, it is necessary to guide the conversion of corporate income tax incentives from 2012 for enterprises that are enjoying corporate income tax incentives due to meeting the export rate conditions (except for enterprises that meet the export rate conditions for textile and garment activities) but whose corporate income tax incentives for meeting the export rate conditions according to WTO commitments are terminated. Enterprises that are enjoying corporate income tax incentives due to meeting the preferential conditions on export ratio but have their corporate income tax incentives terminated due to implementing WTO commitments, from 2012, can choose to continue enjoying corporate income tax incentives for the remaining period corresponding to the actual conditions of the enterprise meeting investment incentives (in addition to the preferential conditions due to meeting the export ratio).

Overall, the design of tax rates and tax incentives mentioned above ensures the maintenance of current preferential policies (even higher incentives), creating new incentives for the entire economy. In addition, it has overcome the limitations and shortcomings of the previous income tax policy in terms of complexity, spread and limitations in prioritizing resource allocation for particularly difficult areas. At the same time, it ensures the improvement of Vietnam's investment and business environment in line with the trends of countries in the world and in the region, enhancing the competitiveness of the business community and the economy.

2.2.3. Current status of methods and procedures for adjusting income tax in Vietnam

Through the evaluation of the stages of income tax reform in recent times, we see the trend of applying proactive methods. In 2003, after 5 years of implementing the corporate income tax law (from 1999 to 2003), the Government

has reviewed and assessed the implementation of the Law on Corporate Income Tax to submit to the National Assembly for amendments and supplements to the Law on Corporate Income Tax. In which, there are many important amendments drawn from the review and assessment process. However, there are also times when adjustments combine both active and passive methods. Using both methods will have more reasonable income tax adjustment policies. In 2007, when Vietnam became a member of the WTO, we had to fulfill our commitment to abolish the incentives of the Vietnamese Government in encouraging exports. Therefore, we had to issue Decree 24/2007/ND-CP of the Government and Circular 134/2007/TT-BTC of the Ministry of Finance, which abolished incentives on tax rates and tax exemption periods for exporting enterprises. However, in the process of researching and promulgating tax policies to implement commitments, we have also proactively reviewed inappropriate issues to continue to improve, and proactively reviewed the list of industries and areas with investment incentives to ensure incentives for reasonable resource allocation.

Adjusting income tax must rely on many surveys and opinions to select appropriate content before issuing adjustment documents. Therefore, management agencies periodically have preliminary or final summaries of the implementation of income tax policies in order to make timely adjustments. On the other hand, cases with concerns or inadequacies in income tax policies are often collected by relevant agencies for investigation and adjustment.

For legal documents issued by the National Assembly, the signing stage is the step where the Government submits them to the National Assembly for comments. The National Assembly's Finance and Budget Committee will meet to review them first, then the National Assembly will discuss and contribute comments. If there are many comments, the drafting committee will study and report on the explanation and acceptance plan. Based on the draft Law that has been revised after receiving the opinions of National Assembly deputies, the National Assembly will vote to approve the draft law. After the National Assembly approves, the President signs the order to promulgate the law, then the law will officially come into effect.

2.2.4. Impact of income tax adjustment in Vietnam under the condition that Vietnam is a member of WTO

2.2.4.1. Impacts of income tax adjustment in Vietnam under the condition that Vietnam is a member of WTO

- Impact of corporate income tax on budget revenue.