Solutions to Improve Vietnam's Tax System in the Process of International Economic Integration

Revenue from special consumption tax annually accounts for 15 to 18% of total indirect taxes. With these results, it can be seen that the issuance and application of special consumption tax in the past time is reasonable and correct. However, through practical application, the current special consumption tax policy in our country still has problems that need to be overcome:

Firstly , regarding taxable subjects: According to current regulations, special consumption tax is only collected on 8 types of goods and 5 types of services. Thus, the subjects subject to special consumption tax in our country are currently quite narrow, there are still many types of goods and services that should be regulated by special consumption tax but have not been included in the taxable category such as high-end electrical and electronic appliances, etc. On the contrary, there are cases where goods should be encouraged for consumption to ensure health such as cars with 16-24 seats, there are cases where discrimination is shown between imported goods and domestically produced goods, etc. This is not consistent with the principle of national treatment when Vietnam joined the WTO.

Second , regarding tax rates, the current special consumption tax rates are quite complicated, in 8 taxable items there are up to 12 different high and low tax rates from 15 - 100%. For each type of goods and services, there are different corresponding tax rates. In some cases, for the same type of goods, they are divided according to different criteria to apply very different tax rates, so the tax schedule is even more complicated, making it very difficult to determine the exact applicable tax rate and easy to be applied arbitrarily. For example, with tobacco products, if produced mainly from domestic materials, the tax rate is 45%, but if mainly from imported materials, the tax rate is 65%, etc.

Third , regarding tax exemption and reduction, according to current regulations of special consumption tax policy, small-scale beer production facilities (with a capacity of 10 million liters/year) in operation, if they pay full special consumption tax but incur losses, will be considered for special consumption tax reduction corresponding to the amount of loss in the year of tax reduction consideration. This regulation to some extent does not encourage the above production facilities to improve production and business efficiency, invest in expanding production. In addition, the regulation distinguishes between domestically produced cars and imported cars for special consumption tax exemption and reduction to protect

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The support for the relatively young automobile assembly industry in our country in the past is no longer suitable because it violates the commitments under the CEPT program and violates the WTO's national treatment principle.

Fourthly , regarding taxable prices, according to current law, the price for calculating special consumption tax on domestically produced alcohol and beer is determined by the Government. It can be said that this regulation shows discrimination against imported alcohol and beer and is inconsistent with WTO principles.

For direct taxes

* Income tax for high income earners.

The Ordinance on Income Tax for High-Income People No. 14/PL - UBTVQH11 dated March 24, 2004 (Concretized by Decree No. 147/2004/ND-CP of the Government dated July 23, 2004 and Circular No. 81/2004/TT-BTC of the Ministry of Finance guiding its implementation) has come into effect and increased the state budget's revenue in regulating the income of a segment of high-income people. However, in the implementation process, there are still issues that need to be adjusted to conform to international practices:

- Article 3 of Decree 147 stipulates: Temporarily not collecting income tax on income from bank deposit interest, savings deposit interest, interest on purchasing treasury bills, bonds, promissory notes, stocks, income from securities investment activities, and differences between buying and selling securities.

Thus, it can be understood that the above income is essentially income subject to personal income tax, but currently due to many different reasons, it has not been managed. However, this still has an inadequacy, that is, income from stock purchase interest (dividends) is income subject to corporate income tax because this income is distributed after tax at the place of sale of stocks and therefore, in principle, it must be classified into the group not subject to personal income tax to ensure accuracy and compliance with international practice.

- Financial experts also believe that the current income tax collection from high-income earners is showing many limitations and is very uneconomical. For example,

They are all taxable subjects with an income of 5 million VND/month, but it does not distinguish between single people and people with families, nor does it specifically verify the income source of the taxable subject,...

For example : In Thailand, the personal income tax law allows taxpayers to deduct all expenses related to work, insurance premiums, contributions to private social insurance funds, bank loan interest to buy or build a house, etc. The remaining income is further deducted by 10%, and only 90% of the remaining income must be taxed. In addition, Thailand also clearly stipulates the deductible expense levels, such as the cost of raising 1 child, 2 children, etc., the cost level for the taxpayer himself, etc.

In Singapore, taxpayers are allowed to deduct living expenses for themselves, costs of raising disabled people, raising their first, second, third, fourth, and fifth children; parents and grandparents; paying life insurance premiums, tuition, hospital fees, childbirth, hiring a maid, etc. Meanwhile, the current Personal Income Tax Ordinance does not allow family deductions, which is not in line with the general standards of the tax system in the world.

- Regarding tax rates, according to tax experts, the current tax rate is too high. The current Personal Income Tax Ordinance stipulates that the personal income tax rate for domestic people is 10% if they have an income of 5 - 15 million VND/month; 20% (income from 15 - 25 million VND/month), 30% (from 25 - 40 million VND/month), the highest tax rate is up to 40% (for people with an income of over 40 million VND/month), the same for foreigners. This tax rate is much higher than some countries and territories in Asia where people have much higher incomes than Vietnamese people, such as Singapore where the highest tax rate is 22%; Japan: 37%; Thailand: 37%; Philippines: 32%; Malaysia: 28%; Hong Kong (China) 17%. This also has the potential to reduce the competitiveness of the Vietnamese economy when integrating into the world economic system.

* Corporate income tax

The amended and supplemented Law on Corporate Income Tax took effect from January 1, 2004. When put into practice, it can be said that this law has contributed to creating more unity and rationality in the implementation of mobilizing the state budget from an important tax of a specific nature.

Direct tax is corporate income tax. However, currently, corporate income tax also has certain shortcomings:

- The corporate income tax rate has been reduced from 32% to 28% (except for those who enjoy investment incentives) which is an important reform step, but compared to other countries in the region or neighboring China (the general corporate income tax rate is 25%), this tax rate is still high and needs to be reduced further. On the other hand, it can be seen that for those currently eligible for investment incentives, in addition to enjoying preferential tax rates (20%; 15%; 10%, ...), enterprises in this category also enjoy certain periods of exemption and reduction of corporate income tax calculated from the time of taxable income. This regulation often makes the management and monitoring of the implementation of incentive policies quite complicated, confusing, and even controversial. For example, newly established production cooperatives from investment projects in the delta region, in addition to enjoying a corporate income tax rate of 20% for 10 years from the date of operation, a 50% reduction for 10 years from the date of operation, are also exempted for 2 years and a 50% reduction for the next 2 years from the date of taxable income. For cooperatives established in mountainous regions, the incentives are even higher,...

- On corporate income tax on land use rights transfer and land lease rights transfer

Article 12, Decree 164/2003/ND-CP of the Government detailing corporate income tax states: "...The subjects paying income tax from the transfer of land use rights and land lease rights are organizations producing and trading goods and services with income from the transfer of land use rights and land lease rights,...".

However, the basis for calculating corporate income tax from this activity such as revenue, expenses, etc. is still very difficult to determine accurately and consistently, mainly because transactions in our economy are not transparent and strict. On the other hand, the implementation of this policy is still lacking in consistency. Meanwhile, we also have regulations on additional corporate income tax on income from land use rights transfer and land lease transfer, making implementation even more difficult.

- Regarding corporate income tax declaration:

Article 21, Decree 164/2003/ND - CP stipulates: "... Business establishments are responsible for declaring revenue, expenses, taxable income, and taxes payable for the entire year, divided into each quarter according to the tax authority's declaration form and submitting to the tax authority directly managing them no later than January 25 of each year or the 25th of the month following the month ending the fiscal year for business establishments with a fiscal year other than the calendar year. According to current regulations, this is also the basic basis for "temporarily" collecting and paying quarterly corporate income tax for enterprises. However, the method of declaring taxes according to the above regulations is still heavily planned and does not focus on information from the enterprise side and ensure closeness to reality. Because fluctuations in production and business in the market mechanism are normal and therefore, declaring corporate income tax if done in shorter periods than doing it for the whole year as mentioned will be much more effective.

In Circular 128/2004/TT - BTC issued the self-declaration form for corporate income tax settlement on December 27, 2004 of the Ministry of Finance applicable to all enterprises, however, the declaration form is still long and unnecessarily detailed.

Chapter 2 Summary

Through analyzing the current status of the tax system and some current taxes in Vietnam, it can be seen that besides the great achievements of the reform of the Vietnamese tax system from 1990 to the present, there are still shortcomings and inadequacies, especially some points that are not in accordance with international standards and practices. That requires a roadmap, with specific solutions to build Vietnam's tax system to gradually approach the world's common tax standards, thereby helping Vietnam successfully integrate into the regional and world economy.

CHAPTER 3

IMPROVING VIETNAM'S TAX SYSTEM IN THE PROCESS OF INTERNATIONAL ECONOMIC INTEGRATION

3.1. OBJECTIVE

3.1.1. General objectives

In the report on socio-economic development strategy 2001 - 2010 at the 9th National Congress of the Communist Party of Vietnam, it was affirmed:

" Continue to reform the tax system in accordance with the country's situation and international commitments. Supplement, perfect and simplify taxes, gradually apply a unified tax system, without distinction between enterprises of different economic sectors, Vietnamese enterprises and enterprises with foreign investment. Apply a unified and convenient personal income tax to all taxpayers, ensuring social justice and creating development momentum. Modernize tax collection and strengthen state management ".

That strategic orientation of the Party was specified in Decision No. 201/2004/QD-TTg dated December 6, 2004 of the Prime Minister on approving the tax system reform program until 2010, according to which, in order to be consistent with international practice, the decision stated that it is necessary to:

- Building a synchronous tax policy system with a reasonable structure, suitable for a socialist-oriented market economy;

- Modernize tax administration to ensure implementation of national income mobilization policies, ensure financial resources to serve the cause of industrialization and modernization of the country;

- Contribute to achieving equality, social justice and proactive international economic integration;

3.1.2. Specific goals and requirements

To perfect the tax system to conform to international practices and at the same time help Vietnam improve its competitive position in the international arena, we need to set specific goals and requirements:

- Tax policy must be a tool for the state to manage and regulate the economy on a macro level, promote production development; boost exports, innovate technology, and shift economic structure; ensure high and sustainable economic growth, contributing to stabilizing and improving people's lives;

- Tax policy must mobilize all sources of revenue into the state budget, ensure the regular spending needs of the state and reserve a portion for accumulation to serve the cause of industrialization and modernization of the country. Ensure the average annual rate of tax mobilization into the state budget reaches 20 - 21% of GDP.

- Tax policy must be consistent with international practices and international commitments that Vietnam has signed or participated in: Commitments in the CEPT Agreement, APEC, and especially WTO agreements. At the same time, tax policy must ensure reasonable protection requirements for domestic production; selective protection, over time, increasing the competitiveness of the domestic economy, promoting production development, and not violating WTO regulations.

- Tax policy must create an equal and fair legal environment, applying a unified tax system without discrimination between economic sectors as well as between domestic enterprises and foreign-invested enterprises.

- Promote tax system reform towards simplicity, transparency, publicity, and separation of social policy from tax policy.

- Quickly modernize and improve the capacity of the tax administration apparatus, overcome negative phenomena and weaknesses to make the tax administration apparatus clean and strong.

3.2. SOLUTIONS TO IMPROVE VIETNAM'S TAX SYSTEM IN THE PROCESS OF INTERNATIONAL ECONOMIC INTEGRATION

3.2.1. Amend and supplement current taxes and fees in a synchronous manner

3.2.1.1. Value added tax

The WTO currently has 148 members, accounting for about 97% of global trade turnover. There are currently 25 countries and territories in the process of negotiating to join this organization, including Vietnam. Joining the WTO will bring many great benefits but also put our country in front of difficulties and challenges. In the context of Vietnam joining the WTO, value-added tax needs to be completed on a number of main contents:

(1) Narrowing down the subjects not subject to value added tax, both ensuring the neutrality of this tax and exploiting revenue sources in the context of integration:

- It is necessary to review the subjects that are not subject to value added tax according to current regulations but are deemed not beneficial to the collection mechanism or cause disruption to the continuous system of the deduction mechanism, then transfer them to subjects subject to value added tax.

- In the future, it is possible to add value-added taxable items such as agricultural products to ensure the implementation of value-added tax in a continuous and unified manner in all production and business sectors. At the same time, it will create conditions for production and business activities to be entitled to deduct input tax on materials, fertilizers, pesticides, machinery and equipment, etc. used for agricultural production activities. On that basis, promote the modernization of agriculture and rural areas, bringing agriculture to a major production step as outlined by the Party and State.

(2) Perfecting regulations on value added tax rates

- Apply the negative listing method to specifically determine the scope of application of the common tax rate, to ensure the simplicity of tax policy, while being consistent with international practice. The practice in countries often applies the negative listing method: all goods and services, not subject to tax exemption or tax at a reduced rate, are subject to tax at the common tax rate. Vietnam should approach with such a negative listing method, both to ensure simplification of legal provisions on value added tax and to minimize potential confusion.

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