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Request for “Support for Developing and Underdeveloped Countries”

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restricting subsidies that have negative impacts on the trade of other members. The SCM Agreement classifies subsidies into three types:

- Prohibited subsidies (red subsidies);

- Allowable but actionable (gold subsidy);

- Subsidies are allowed to be freely used (green subsidies).

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The SCM has specified which subsidies are considered red subsidies. In addition to direct government funding to businesses, the following activities are also covered by red subsidies:

- Providing subsidized raw materials for export production;

Request for “Support for Developing and Underdeveloped Countries”

- Exemption from direct taxes (e.g. income tax earned from exports);

- Refund of import tax on raw materials used to produce export goods in excess of those used to produce export goods;

- Excess tax refunds eligible for export deduction;

- Lending credit at lower interest rates than cost.

1.2.2.4. Transparency requirements

In order to create a stable and predictable business environment in the multilateral trading system, the WTO requires its members to implement measures to ensure transparency in their economic and trading systems. Such a business environment helps enterprises effectively orient their future business strategies, encourages them to invest, thereby creating jobs and contributing to improving the living standards of the population. To implement this principle, the WTO requires its members to implement measures such as:

Make binding commitments. That means making tariff commitments, when the market opening commitment comes into effect, the country will not be allowed to increase tariffs beyond the committed level.

Establish competent bodies to review administrative decisions affecting trade; consider requests and recommendations from other members.

Members must ensure conformity between their laws and policies with the WTO agreements. This is a legal obligation of members. Each member must ensure conformity of its laws, policies and administrative procedures with the obligations set out in the agreements.

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The requirement of transparency is essential for the implementation of commitments and for the exchange of information within the WTO. In addition, it also helps to enhance the power of the WTO over its members.

1.2.2.5. Requirement to “support developing and underdeveloped countries”

With three-quarters of its members being developing countries and economies in transition, one of the basic principles of the WTO is to encourage economic development and reform, granting special and differential treatment to these countries, with the aim of ensuring their deeper participation in the multilateral trading system. In order to carry out this requirement, the WTO provides developing countries and economies in transition with certain flexibilities and preferences in implementing agreements, while also paying attention to technical assistance for these countries. Thanks to this requirement, domestic enterprises in developing countries or economies in transition have time to adapt to the new, more competitive and fairer environment, so as not to suddenly reduce income or possibly lead to bankruptcy.

1.2.3. Conditions and roadmap for adjusting income tax when becoming a WTO member

The commitments of applicants when joining the WTO must be considered as countries that are oriented towards developing a market economy and have the desire to join the WTO. The specific conditions are as follows:

- The first condition is to immediately abolish subsidies supporting industries and businesses in production, business and export. These measures are considered unfair in business and must be abolished immediately upon accession. However, depending on the conditions of each country, it can last from 3-5 years at most.

- The second condition is to treat domestic and foreign individuals and legal entities equally. In particular, expanding business rights, including import-export rights, for foreign enterprises and individuals as well as domestic individuals and enterprises...

- The third condition is to respect and enforce intellectual property rights protection laws, tax valuation methods, investment and trade intervention measures immediately after joining the WTO. Countries that have become official members must accept this condition and enforce it immediately after it is officially approved.

- The fourth condition is to make it transparent by publicly announcing everything.

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Draft legal documents on mass media including those of the Government and local government organizations so that people can know and get their opinions. Commit to implementing and posting the full text of this document and other legal documents publicly in magazines and websites to demonstrate transparency in the issues of commitment when joining the WTO...

- The implementation roadmap for countries applying for accession will be determined according to the actual situation and context of negotiations with member countries. The first year must be considered as the official year of joining the WTO, not taking the first bilateral negotiation period as a benchmark. Depending on the wishes and reality, a grace period will be considered for the parties to supplement the missing conditions. Normally, underdeveloped and developing countries will be considered for this content when wishing to join the WTO.

In addition, if specific measures or regulations are the main principles, they must be eliminated immediately and a specific time frame of no more than 6 months must be given for implementation. If measures and regulations of the countries applying for accession need time to be overcome, they must be completed within a maximum of 3-5 years, depending on the specific content.

1.2.4. Factors affecting income tax adjustment when becoming a WTO member

1.2.4.1. Objective factors affecting income tax adjustment when becoming a WTO member.

First of all, the adjustment of income tax depends entirely on the domestic and international socio-economic situation. In the context of the economic recession that began in late 2007, many economic reforms of member countries have been hindered. The international context has also seen protests against globalization and trade liberalization. Many countries have emerged with a clear protectionist ideology, which has delayed the commitment to adjust income tax in particular and the implementation of all commitments in general by member countries. Member countries are quite hesitant and also have to deal with domestic opposition. Therefore, the domestic and international socio-economic situation greatly affects the implementation of commitments of countries when joining the WTO.

Second, the spending needs of national budgets also affect the implementation of commitments to reduce tariff lines with uniform and equal implementation.

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Equal income taxes. New member countries mostly have large revenue sources based on indirect taxes, protection taxes, etc., so when cutting, they cannot be immediately compensated by income taxes. Income taxes often cause strong reactions, so they can easily cause social instability when applied suddenly. Therefore, the commitment to adjust income taxes when becoming a WTO member also raises the issue of a certain tax delay. Committed countries often build a maximum roadmap to create a reasonable transition period in implementing income tax adjustments. Therefore, if the revenue structure of the budget is also an important factor that clearly affects the commitment to adjust income taxes when becoming a WTO member.

Third, the physical conditions of participating countries also greatly affect the implementation of commitments, especially commitments on income tax. To properly manage tax revenue sources, it is necessary to have a strong physical facility and information system to comprehensively manage revenue sources and taxable subjects. Subjects subject to direct taxation often react strongly and conceal taxable income, so it is necessary to have physical facilities and information systems to manage these subjects. Developed countries are often equipped with better equipment and institutions, but countries that join later are often poor and developing countries that lack physical facilities. Therefore, the progress of implementing commitments to adjust income tax when they become WTO members of these countries is often slow.

1.2.4.2. Subjective factors affecting income tax adjustment when becoming a WTO member.

The first subjective factor that needs to be mentioned is the determination of the Government and law enforcement agencies to implement. Although admitted as a member, failure to fully implement commitments is also likely to be criticized and have its status reviewed. Therefore, the committed countries must strictly comply and proactively implement their commitments. However, many member governments are also distracted when other urgent issues arise that delay progress, and many countries even appear indifferent and irresponsible when implementing international commitments. Therefore, the Government's determination to implement its income tax adjustment commitments in particular and its overall commitments in general is the most important influencing factor.

Second, the professional qualifications of civil servants implementing and relating to income tax commitments as a WTO member are also a strong influencing factor.

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strongly to the progress of commitment implementation. The staff's understanding and ability to implement international commitments is demonstrated in both professional level and language when international communication is necessary. Most of these staff have not studied and exchanged to familiarize themselves with international regulations, which will make it difficult to implement commitments and vice versa. When staff have high professional level and good foreign language skills, implementing commitments will be easier and faster.

Third, the work of propaganda and guidance on the implementation of commitments also has a significant impact on international commitments on income tax when becoming a WTO member. Countries with strong propaganda and guidance work will create awareness and movement in the work of implementing commitments. On the contrary, countries that do not attach importance to this work often encounter more obstacles in implementing commitments to adjust income tax in general and other commitments in particular when becoming a WTO member.

1.3. International experience and lessons for Vietnam on adjusting income tax under the conditions of being a WTO member

1.3.1. International experience in adjusting income tax under the conditions of being a WTO member

In order to build an income tax system in accordance with WTO regulations, learning from the experiences of previous countries is extremely necessary and useful. Within the framework of this thesis, we would like to present the experience of adjusting international income tax according to 4 adjustment contents: adjusting taxable income, adjusting deductible expenses or deductions when calculating income tax, adjusting income tax rates and adjusting tax incentives for both corporate income tax and personal income tax.

1.3.1.. International experience in adjusting regulations on determining taxable income

- For corporate income tax [35]:

Income from project transfers, mineral exploration and exploitation rights, transfer of capital contribution rights, project participation rights, and business rights are essentially income generated during the production and business process of the enterprise. Therefore, these incomes are subject to tax.

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Most countries only allow businesses to carry forward losses to the following year to deduct from taxable income and may or may not limit the number of years that losses can be carried forward. However, some countries (France, Korea, USA) allow losses to be carried forward with specific conditions (regarding the maximum amount of losses that can be carried forward, the deadline for tax declaration and settlement) because tax administration is quite complicated.

+ Corporate income tax laws of all countries allow deductions of actual expenses arising from the production and business activities of enterprises with accompanying invoices and documents, while encouraging expenditures for research and development, vocational training, controlling customer care expenses and not allowing deductions of personal expenses. In general, regulations on deductible expenses when calculating corporate income tax in countries are increasingly strict, limiting the situation where enterprises take advantage to evade taxes.

+ Customer care expenses: Thailand allows businesses to deduct up to 0.3% of revenue but not exceeding 10 million Baht for customer care expenses. Malaysia allows businesses to deduct up to 50% of total customer care expenses. Japan only allows businesses with capital under 100 million Yen to deduct customer care expenses but not exceeding 3.6 million Yen/year. Large businesses are not allowed to deduct customer care expenses.

+ Advertising and promotion costs: Advertising and promotion costs are costs related to the production activities of enterprises and most countries stipulate that they are deductible costs when calculating corporate income tax. However, some countries are concerned that enterprises take advantage of this to reduce their tax obligations, so they limit the deduction level when calculating corporate income tax. For example, China limits the general advertising cost deduction to 15% of annual revenue. Some industries (cosmetics, pharmaceuticals, soft drinks) are allowed to deduct up to 30% of revenue. The amount exceeding the control level can be carried forward to deduction in the following years. The Republic of Lithuania also only allows enterprises to deduct up to 75% of advertising and promotion costs.

+ Regulations on controlling interest rates for enterprises with low equity: Enterprises with low equity, also known as thin capitalization, are the phenomenon of enterprises having a capital structure with a ratio of borrowed capital (debt) many times higher than that of equity (equity). Practices in countries show that

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Enterprises (usually multinational corporations) mainly use borrowed capital but in fact it is capital contributed by related companies to reduce tax obligations (due to the deduction of pre-tax interest expenses). From the above practice, many countries are concerned about the situation of tax loss, so the corporate income tax policy in some countries stipulates that the interest paid by enterprises on borrowed capital exceeding a certain ratio (of borrowed capital to equity) is not considered a deductible expense but must be considered as dividends when calculating taxes. Canada was the first country to apply the thin capital regulation in 1971. Australia applied it in 1987, the US applied it in 1989. Currently, most European countries and OECD member countries have applied the thin capital regulation. Regarding the ratio of debt to equity, in reality, this ratio varies greatly from country to country at rates of 2:1, 3:1, 4:1, and for financial institutions, the higher regulation is 5:1 or 6:1.

- For personal income tax [36]:

In general, the regulations on taxable income of countries are relatively similar, covering types of income such as: income from interest; income from dividends; income from business; income from salaries and wages; income from pensions; income from capital and real estate transfers; income from property rentals and other income (inheritance, gifts, royalties, etc.).

The scope of tax-exempt income also varies between countries. In addition to allowing tax exemption for some income (according to international treaties, income from prizes, etc.), some countries also have regulations allowing tax exemption for some allowances and subsidies that are not in the nature of wages or salaries. For example, China allows tax exemption for severance pay for employees or discharge allowance for soldiers, settlement allowance for state officials and civil servants, etc.

In addition, some countries also have regulations on some specific tax-exempt income, depending on the policy orientation of each country, for example, some countries allow tax exemption for income from capital investment (South Africa, Argentina...), income from long-term housing savings programs (Korea) or there are businesses that do not collect tax on income from capital transfers (Malaysia, Singapore...). Some countries also allow income of agricultural production households (within a certain scope) to be tax-exempt (such as Korea). Some

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Countries that allow income from the transfer of a single home or land to be tax-free (South Korea, Australia) to encourage households to improve their housing conditions.

Regarding the personal income tax policy for income from retirement savings, research on international experience shows that there are two common methods currently applied by countries. The first method is: "tax exemption - tax exemption - tax" or "taxation - tax exemption - tax exemption". According to the first method, both the income used to contribute to the fund and the interest earned from the fund are exempt from tax, but tax is collected on the benefits received when withdrawing money from the fund. The second method is "taxation - tax exemption - tax exemption", according to which contributions are not deductible when determining personal income taxable income, but interest and personal benefits received when withdrawing money from the fund are exempt from tax.

Many countries around the world have implemented favorable personal income tax policies to encourage retirement savings to ensure that individuals accumulate enough money during their working lives to feel secure when they retire, including complete exemptions for contributions to funds. For example, China's personal income tax law allows contributions to pension funds to be deducted from taxable income. Countries such as Thailand, South Korea, and Morocco also have similar regulations allowing contributions to pension funds to be deducted from income when calculating personal income tax.

Most countries' personal income tax laws have provisions on family deductions in different forms and ways. In terms of classification, the family deductions applied by countries are divided into the following three groups: i) General deductions for individual taxpayers (similar to the family deduction of 4 million VND/month for taxpayers in Vietnam); ii) deductions for dependents, such as deductions for children, spouses, parents, etc. (similar to the deduction of 1.6 million VND/month in Vietnam) and iii) deductions of a specific nature (for example, deductions for medical expenses, education, etc.).

+ General deductions for individuals:

This is an amount that is excluded from taxable income at the same rate, regardless of the taxpayer's "behavior" of using the income. Reason

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