Ensuring Fairness in Reasonable Regulation of Tax Paying Ability

VND, while this individual actually only donated VND 8 million. Regulations on reasonable deduction of expenses for business individuals along with the transfer of business individuals from paying corporate income tax to paying personal income tax, the Personal Income Tax Law has stipulated reasonable expenses that can be deducted when determining taxable income of business individuals.

2.2.2.4. Ensuring fairness in properly regulating tax payment capacity

For personal income tax in particular, tax rates are also the most important factor ensuring fairness in income distribution. The Personal Income Tax Law stipulates a progressive tax schedule consisting of 7 tax rates applicable to income from business and wages and salaries uniformly between Vietnamese and foreigners. This tax schedule will make the tax incentive level lower than the current one, demonstrating the Party and State's policy of "relaxing the people's strength". At the same time, a reasonable level of regulation creates conditions to raise awareness of self-compliance with the law in tax declaration and payment; minimizing tax law violations such as tax evasion and tax fraud. The implementation of the Personal Income Tax Law will create a unified legal corridor to regulate the income of individuals practicing independently and self-employed individuals, creating conditions for competent authorities to have effective tools to inspect and manage personal income. Therefore, although the tax incentive level has decreased, the total personal income tax revenue still ensures a reasonable structure and increases gradually along with economic growth and the increase in individuals with income above the average level of society.

For resident individuals: The Personal Income Tax Law has established two tax schedules to apply to non-resident individuals, regardless of Vietnamese or foreigners, as in the 2001 Ordinance on Income Tax for High-Income Earners, amended and supplemented in 2003. The progressive tax schedule applies to income from business, income from salaries and wages. Compared to the Ordinance, the Law increases the number of tax rates from 4 to 7, but reduces the tax rate by about 10%.

The gap between tax rates is reduced from 10 to 5%. At the same time, the Law also reduces the lowest tax rate and the highest tax rate (to only 5% and 35%, respectively). It can be said that the highest tax rate prescribed by the Law is similar to the laws of some countries in the region: Malaysia 34%, Thailand 37%, Indonesia 35%, China 45%. On the other hand, the 35% rate also helps ensure revenue for the State budget in the context that Vietnam has to fulfill international commitments on reducing import taxes. [5]

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Furthermore, the Law has a very important advance in eliminating deductions from taxable income. Therefore, the new progressive tax schedule will reduce the tax incentive for each individual so that people can voluntarily declare and pay taxes and limit tax evasion and fraud. We can clearly see how the tax incentive for each individual will decrease when applying the Law through the following example: Mr. A has a taxable income of 15 million VND/month and has 3 dependents. According to the Ordinance, Mr. A must pay the tax amount of: 15 million * 10% = 1.5 million VND. According to the Law effective on January 1, 2009, Mr. A's taxable income is only: 15 million - 4 million - (3 people * 1.6 million) = 6.2 (million VND). Therefore, Mr. A must pay the tax amount of: 5 million * 5% + 1.2 million * 10% = 370 (thousand VND). Obviously, although Mr. A's monthly taxable income does not change, he will be able to keep more of his income. This additional portion is generally meaningful to Mr. A himself and his family because it is relatively significant compared to Mr. A's monthly taxable income.

The full tax schedule applies to income from capital investment, capital transfer, real estate transfer, winnings, royalties, franchises, inheritances, and gifts. On the basis of supplementing taxable incomes, the Law has developed a full tax rate schedule. In addition, some types of taxable income that the Law inherits from the Ordinance also

The tax calculation method has been changed. Clause 2, Article 12 of the Ordinance stipulates: income from lottery winnings over 15 million VND/time is calculated at a tax rate of 10%/total income. Based on Clause 1, Article 15 and the Full Tax Schedule in the Personal Income Tax Law, we have another way of calculating tax: taxable income from winnings = taxable income = the prize value exceeding 10 million VND that the taxpayer receives for each winning time; and the tax rate is 10%. Thus, compared to the Ordinance, the Law has increased the taxable area from lottery winnings. Currently, winning a lottery prize of 11 million VND does not have to pay income tax, but when the Law comes into effect, the person who wins 11 million VND must pay tax. However, the amount of tax mobilized for each winning time is reduced. For example, B wins a lottery prize of 20 million VND. Based on the Ordinance, B must pay to the State budget 20 million * 10% = 2 (million VND). Applying the current Personal Income Tax Law, B only has to pay the tax amount: (20 million - 10 million) * 10% = 1 (million VND). The law stipulates that this is more beneficial for individuals with taxable income from lottery winnings. However, it must be affirmed that being more beneficial for the people does not mean that the State is at a disadvantage. Because, it must be reiterated that the Law has added taxable income that was not previously taken into account; at the same time, the Law has reduced the starting point for tax on income from lottery winnings.

For non-resident individuals : The Law has reduced the tax rate on salaries and wages of non-resident individuals arising in Vietnam due to performing work in Vietnam (regardless of where the income is paid). If according to the Ordinance, for regular income (including salaries and wages) of foreigners not residing in Vietnam, the tax rate is 25%/total taxable income; and taxable income is equal to income arising in Vietnam. The Law stipulates that income tax on salaries and wages of non-resident individuals is calculated at 20% of the total salaries and wages earned by

work performed in Vietnam or wages and salaries generated in Vietnam.

In addition to the above results, the actual application of personal income tax in Vietnam shows that the personal income tax policy has revealed some unreasonable points, no longer suitable to the changes in the socio-economic situation, as well as the management methods still have many limitations and shortcomings.

2.2.3. Limitations still existing in legal regulations on the basis for calculating personal income tax

Besides the positive impacts mentioned above, when implementing the Personal Income Tax Law, there will also be difficulties that need to be resolved:

2.2.3.1. About the starting tax level

Regarding the taxable starting level or the deduction for the taxpayer himself, the Law stipulates 4 million VND/person/month, in my opinion, it is unreasonable. This taxable starting level cannot meet the actual needs of current life.

In fact, from 2009 to now, due to the impact of the financial crisis and global economic recession, our country's socio-economy has encountered many difficulties, the prices of goods and services have increased, affecting the lives of taxpayers. In order to reduce the rate of tax and fee mobilization on GDP according to the Tax System Reform Strategy until 2020, ensuring the stability of the policy for the period after 2014, and at the same time to have the State's attention and sharing with taxpayers in the context of economic difficulties, it is necessary to study and adjust the family deduction level. Based on the reference to the fluctuations of the following factors: Economic growth: GDP growth in recent years and expected in the coming years (2011 - 2015) is about 6.5% - 7% (according to Resolution No. 10/2011/QH13 of the National Assembly); GDP per capita: 2009: 19,278 million VND; 2011: 28,541 million VND;

Estimated 2014: 43,181-43,954 million VND (according to the Government's 5-year Socio-Economic Development Plan Report 2011-2015); CPI index: 2009: 6.52%;

2010: 11.75%; 2011: 18.13%; CPI is expected to be below 2 digits in the following years (according to Resolution No. 10/2011/QH13); Minimum wage applied to the administrative sector: 2009: 650 thousand VND, 2011: 830 thousand VND, 2012: 1.050 million VND, expected in 2014: 1.5 million

VND, 2015: VND 1.8 million [31].

Especially in the current context, when the financial crisis is widespread and the prices of goods are escalating, if only 4 million VND per person is not enough to cover the costs of common services such as electricity and water, buying household appliances, not to mention higher needs such as advanced education, entertainment, travel, etc. Therefore, facing practical demands, the Law needs to be amended to raise the starting point for tax liability in accordance with changes in the economy.

2.2.3.2. About tax deductions

The Personal Income Tax Law provides for family deductions. This is an advantage compared to the previous ordinance on income tax for high-income earners, demonstrating greater fairness in income regulation between single people and those with families who have to support more or less dependents. However, in order for the provisions on family deductions to be truly implemented effectively, the Personal Income Tax Law must find solutions to overcome the limitations listed below:

The current Personal Income Tax Law stipulates that the family deduction for the taxpayer himself is 4 million VND/month and the deduction for each dependent is 1.6 million VND/month (no limit on the number of dependents). With the current deduction, a single person with an income of 4 million VND/month does not have to pay tax; a taxpayer with an income of 7.2 million VND/month with two dependents does not have to pay tax; a person with an income of 10 million VND/month

VND/month if there is 01 dependent, the tax payable is 220 thousand VND, if there are 02 dependents, the tax payable is 140 thousand VND (equal to 1.4% of taxable income), the income after tax of the individual is 9.86 million VND (98.6% of taxable income). Implementing this regulation, by the end of 2011, there were 12,647,286 individuals with income from salaries, wages and other income, of which only about 3.87 million people had to pay taxes (accounting for about 4.4% of the country's population); there were about 194 thousand individuals and business households having to pay taxes (accounting for about 0.2% of the country's population, about 6% of the total number of households) [5].

This family deduction level is built on the basis of reference to the indicators of GDP per capita, average income and expenditure of society and minimum wage at the time the Law came into effect in 2009 (equal to about 2.5 times GDP per capita at the time the Law came into effect in 2009). Compared to some countries in the region, for example: China from September 1, 2011, stipulated the family deduction level (without separate regulations for the taxpayer and the level for dependents) of 42,000 NDT/year (equivalent to 6,404 USD/year and equal to 1.23 times GDP per capita in 2011); Indonesia stipulated the deduction level for individual taxpayers of 15.84 million rupiah/year (equivalent to 1,830 USD/year and equal to about 0.527 GDP per capita in 2011); Malaysia stipulates a personal deduction of RM9,000/year (equivalent to USD2,687/year and about 0.312 times the GDP per capita in 2011). Although Vietnam's family deduction rate is higher (about 1.7 times the GDP per capita in 2011), because the average income in Vietnam is still low, the absolute family deduction rate is still low compared to other countries in the region [2].

In addition to the dependents being the wife and children of the income earner, the dependents are the father, mother or other dependents who are elderly.

Age is becoming an increasingly popular subject for deduction. However, the reality is that the management agency's grasp of these deduction subjects is mainly based on the declaration of taxpayers. Therefore, if taxpayers do not voluntarily register or change information even though the dependent has died or has been deducted for another taxpayer, they will still be deducted for the second, third time... and this causes a great loss to the State's tax revenue.

Currently, along with the development of the economy, the movement of the labor force causes a large number of workers to flock to urban areas or places with industrial parks and export processing zones to seek employment opportunities. This raises a problem that in addition to the cost of food, electricity and water, and education for children, workers also have to spend a significant amount on rent and travel expenses... However, this amount is currently not considered a deductible expense when calculating taxes.

2.2.3.3. On income from securities transfer and dividends

*Taxable income from securities transfer

At Point 2.2, Section II, Part B, Circular 84/2008/TT-BTC, stipulating the basis for calculating tax on securities transfer, individuals transferring securities have two ways to calculate tax.

First way : Individuals transferring securities register to pay tax according to the full tax schedule with a tax rate of 20%. Individuals applying the 20% tax rate for securities transfer must meet the following 4 requirements:

- Register the tax payment method according to form No. 15/DK-TNCN with the tax authority directly managing the securities company where the individual registers to trade or the Tax Department where the individual resides. The registration period is as follows:

- Register for tax and have a tax code.

- Implement the invoice and voucher accounting regime, determine taxable income from securities transfer according to regulations.

- The application of the 20% tax rate must be calculated on the total number of securities traded in the calendar year.

Individuals transferring securities who have registered to pay tax at the rate of 20% must still temporarily pay tax at the rate of 0.1% on the transfer price each time.

Second way : Individuals transferring securities without registering to pay tax according to the full tax schedule with a tax rate of 20% will be subject to a tax rate of 0.1% on the securities transfer price each time.

If investors choose to pay tax at a rate of 20%, they must register with the tax authority before December 31 of the previous year; must prepare and complete documents and prove reasonable and valid expenses to the tax authority; must have accounting books specifically recording the purchase price - sale price; in addition, they must still temporarily pay 0.1% of the total value of each securities transfer and only make tax settlement at the end of the year. If the tax paid is insufficient, they must pay additional tax and if there is excess, they will receive it back. The complexity and difficulty of implementing this method of tax payment have caused most investors to choose to pay tax calculated at 0.1% of the total value of each transfer. Because most investors are small individual investors, implementing the accounting system as well as collecting documents and invoices to prove the costs incurred in the process of investing and buying and selling securities is very difficult, even impossible. In addition, transactions via the Internet, text messages or telephone are very popular nowadays, so collecting electronic invoices is very difficult. Although Vietnam currently has a Law and Decree on electronic transactions and the Ministry of Finance has also issued a Circular guiding electronic invoices in the financial sector, so electronic invoices can be applied to tax calculations for securities transfer activities. However, in reality, electronic invoices cannot fully and accurately reflect the total cost (including tangible and intangible costs).

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