(Tiểu luận) analysis of vietnamese law on personal income tax (pit)

Progressive tax rates for net taxable compensation and business income applied for both residents and non-residents, Philippines .... Currently, most countries in the world, including Vi

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

-

MID-TERM ASSIGNMENT Major: International Business Economics

ANALYSIS OF VIETNAMESE LAW ON PERSONAL

INCOME TAX (PIT)

Students Student IDs (Team 8): –

Nguyen Ngoc Thao Nhi 1911155065; –

Nguyen Quang Phuc Hao 1911155033; –

Nguyen Quang Khai 19111155040; –

Nguyen Phuc Lam Kieu - 1911155041; Nguyen Pham Cong Minh - 1911115278 Class: ML143

Intake: 58 Supervisor: Mrs Tran Nguyen Chat

Ho Chi Minh City, August 2022

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

-

MID-TERM ASSIGNMENT Major: International Business Economics

ANALYSIS OF VIETNAMESE LAW ON PERSONAL

INCOME TAX (PIT)

Students Student IDs (Team 8): –

Nguyen Ngoc Thao Nhi 1911155065; –

Nguyen Quang Phuc Hao 1911155033; –

Nguyen Quang Khai 19111155040; –

Nguyen Phuc Lam Kieu - 1911155041; Nguyen Pham Cong Minh - 1911115278 Class: ML143

Intake: 58 Supervisor: Mrs Tran Nguyen Chat

Ho Chi Minh City, August 2022

i

STATEMENT OF AUTHORSHIP

We hereby certify that the information contained in this essay our own original is work and that all cited sources are adequately cited in the references Additionally, weguarantee that the information utilized and the conclusions drawn from it are accurate, moral, and original to this study We are aware of the repercussions of copyright breaches and hereby agree to accept responsibility for the essay contents in the event of such violations

Ho Chi Minh City, August 2022

The group of authors

Tax ML143 K58CLC Detailed outline…Taxation None

3

iii

ACKNOWLEDGEMENT

We would like to express our most sincere gratitude to Foreign Trade University,

Ho Chi Minh City Campus, for facilitating the module Taxation & Tax System in Vietnam for us to study It has given us the chance to deep dive into the tax system and its application, especially for the topic of Personal Income Tax Lastly, we owe a debt of gratitude to Ms Tran Nguyen Chat, our highly esteemed lecturer, for giving us a chance

to conduct this research and for your passionate and diligent guidance in helping us complete this essay, which is an enormous honor for us

luậtTaxation None

26

TABLE OF CONTENTS

STATEMENT OF AUTHORSHIP i

ACKNOWLEDGEMENT iii

TABLE OF CONTENTS v

LIST OF ABBREVIATIONS ix

LIST OF TABLES x

LIST OF FIGURES x

PREFACE 1

Rationale of the research 1

Objectives of the research 1

Subject and scope of the research 1

Subject of the research 1

Scope of the research 2

Contribution and meaning of the research 2

Structure of the research 2

Chapter 1 OVERVIEW OF PERSONAL INCOME TAX 3

1.1 Definition of Personal Income Tax 3

1.2 History of Personal Income Tax 3

1.3 Characteristics of Personal Income Tax 3

1.4 The importance of Personal Income Tax 4

1.5 International experience in the application of Personal Income Tax 6

vi

1.5.2 Personal Income Tax in Southeast Asia 6

1.5.3 Personal Income Tax in the US 9

1.5.4 Trends in policy adjustments 9

Chapter 2 ANALYSIS OF PERSONAL INCOME TAX IN VIETNAM 11

2.1 General provisions of Personal Income Tax 11

2.2 Detail provisions of Personal Income Tax 12

2.2.1 Taxpayers 12

2.2.2 Taxable incomes 12

2.2.3 Non-taxable incomes 13

2.2.4 Tax reduction 13

2.2.5 Tax rates 14

2.2.6 Assessable incomes 17

2.2.7 Tax administration 17

2.3 Calculation of Payable amount of PIT & practical exercise 18

2.3.1 Calculation of Payable amount of PIT based on Partially progressive tax rates 18

2.3.2 Practical exercise 18

2.4 Tax evasion cases in Vietnam 20

2.4.1 The case of Nguyen Kim 20

2.4.2 The case of YouTubers 21

2.5 Personal Income Tax from multiple viewpoints 22

2.5.1 From viewpoints of taxpayers 22

2.5.2 From viewpoints of businesses 23

Chapter 3 FINDINGS & RECOMMENDATIONS 25

3.1 Findings 25

3.1.1 Evaluation of PIT in Vietnam 25

3.1.2 Key learning points from the case of Singapore and reflection on Vietnam 27

3.2 Recommendations 28

CONCLUSION 31

REFERENCES 33

APPENDIX 35

Appendix 1 PROGRESSIVE TAX RATES FOR RESIDENTS OF SOUTHEAST ASIAN NATIONS (EXCLUDING VIETNAM & BRUNEI) 35

Appendix 2 APPLICABLE TAX RATES IN THE US 40

CPTPP Comprehensive and Progressive Agreement for Trans-Pacific

Partnership

EVFTA European Union–Vietnam Free Trade Agreement

OECD Organization for Economic Cooperation and Development

x

LIST OF TABLES

Table 1.1 Summary of progressive tax rates for residents of Southeast Asian nations 7

Table 2.1 Tax rates for employment incomes of tax residents 15

Table 2.2 Tax rates for non-employment incomes of tax residents 15

Table 2.3 Tax rates for business incomes of tax residents 16

Table 2.4 Tax rates of non-residents 16

Table 2.5 Calculation of Payable amount of PIT based on Partially progressive tax rates 18

Table 2.6 Information on net monthly incomes and tax reductions 19

Table 2.7 Calculation steps of payable amount of PIT 20

LIST OF FIGURES Figure 1.1 Tax structure compared to the regional averages 5

Figure 1.2 Comparing progressive tax rates for residents of Southeast Asian nations with GDP per capita 8

Figure 3.1 Breakdown of Government Operating Revenue in FY2021 of Singapore 27

Figure 3.2 Government expenditure proportion for social welfare (Health & Education) 28

Figure 0.1 Progressive tax rates for profits from self-employment and investment by individuals, Cambodia (Source: EY, 2022) 35

Figure 0.2 Progressive tax rates for monthly income from employment by individuals, Cambodia 35

Figure 0.3 Progressive tax rates apply to individuals, Indonesia 35

Figure 0.4 Progressive withholding tax rates applied to termination pay, Indonesia 36

Figure 0.5 Withholding tax rates applied to lump-sum payments of pensions, Indonesia 36

Figure 0.6 Progressive tax rates applied to employment income, Laos 36

Figure 0.7 Progressive tax rates applied to micro-enterprises, including freelancers who

engage in business activities, Laos 36

Figure 0.8 Flat rates for other types of income, Laos 37

Figure 0.9 Progressive tax rates for assessable incomes, Malaysia 37

Figure 0.10 Progressive tax rates for net taxable compensation and business income (applied for both residents and non-residents), Philippines 38

Figure 0.11 Progressive tax rates for assessable incomes, Singapore 38

Figure 0.12 Progressive tax rates for net assessable incomes, Thailand 38

Figure 0.13 Income tax rates applicable for a resident individual taxpayer, Timor-Leste 39

Figure 0.14 Personal income tax rates, Myanmar 39

Figure 0.15 Tax rates for married filling joint returns, the US 40

Figure 0.16 Tax rates for married filling separate returns, the US 40

Figure 0.17 Tax rates for head of household, the US 41

Figure 0.18 Tax rates for single individuals, the US 41

PREFACE

Rationale of the research

Taxes are an essential source of income for the State budget that is clearly regulated

by law for economic organisations and individuals Paying tax is an obligation that must

be performed by entities subject to taxpayers according to regulations One of the taxes that make a large contribution to promoting the state budget is the personal income tax (PIT) Currently, most countries in the world, including Vietnam, have brought in laws and regulations on personal income tax This illustrates the undeniable role of personal income tax in the state budget and social equity In addition, as students about to graduate and approach business environment, the group of authors realise that equipping ourselves with sufficient knowledge about PIT is an indispensable issue Therefore, the

group of authors decided to research and analyse the topic: "The law of personal income tax in Vietnam"

Objectives of the research

There are three objectives to be conducted in this research

Firstly, we aim to provide readers with a thorough knowledge of personal income tax as well as Vietnamese law on this kind of tax The second is to give more

explanations on the components and calculation of personal income tax Finally, we

make recommendations to improve the laws on personal income tax in Vietnam by comparing the personal income tax laws in Vietnam with the world

Subject and scope of the research

Subject of the research

Over the past decade, personal income tax has played an increasingly important role in the management and administration of the country by the government, including Vietnam The Vietnamese State constantly considers, amends, supplements, and perfects the law on personal income tax in order to optimise the benefits for the country and its citizens Thanks to the wisdom in promulgating personal income tax laws, Vietnam has been gradually stabilising in development, compared with other countries in the world

2

In this essay, our group will analyse more deeply the Vietnamese law on personal income tax

Scope of the research

In this study, we will assess the Vietnamese law on personal income tax through two main approaches The first one is to compare the law on personal income tax of Vietnam with other countries in the world to find out the advantages and disadvantages

of Vietnamese law The second one is to describe some real cases related to personal income tax in Vietnam that the authors have discovered The authors then can make a detailed assessment and present the group's findings of Vietnamese law on personal income tax and its impact on the country's administration of Government

Contribution and meaning of the research

Personal income tax is one of the most fundamental sources of revenue for both the current and future development of the country Therefore, the law on it is always carefully revised and adjusted by the state to be most appropriate The essay will first help to identify the role of Vietnamese law on personal income tax and make some comparisons about it from the view of employer and employee Through world experiences and practical cases, the essay will then point out the advantages and disadvantages of Vietnamese law on personal income tax and propose recommendations for improving it

Structure of the research

In this paper, we take a deeper look into the Vietnamese law on personal income tax to demonstrate its importance to the State and provide some personal suggestions for higher improvements in the application of this tax This paper consists of three chapters: Chapter 1: Overview of Personal Income Tax

Chapter 2: Analysis of Personal Income tax in Vietnam

Chapter 3: Findings & Recommendation

Chapter 1 OVERVIEW OF PERSONAL INCOME TAX

1.1 Definition of Personal Income Tax

The term "income tax" refers to a type of tax that governments impose on income generated by businesses and individuals within their jurisdiction Regarding the law, taxpayers are obliged to file an income tax return annually to determine their tax liabilities

Personal income tax is a type of income tax that is levied on an individual's wages, salaries, and other types of income Thanks to the national policy of exemptions, deductions, and credits, most individuals do not have to pay taxes on all of their income

1.2 History of Personal Income Tax

PIT has appeared for more than a century and has been widely used in the United State and Europe since the late nineteenth century Up to now, there are around 180 countries applying laws on personal income tax and Vietnam is also one of them (TinLaw, n.d.)

Previously, when the country was just liberated, due to the centralized economy, the state did not collect taxes on the income of non-business individuals Currently, the economic and management mechanism has changed into the market economy, leading

to a big gap between the rich and the poor Hence, the government realizes that there is

a must to regulate income between classes of society

On November 21, 2007, after many amendments and supplements, the National Assembly promulgated the Law on Personal Income Tax, which took effect from January 1, 2009 And in 2012, the Law on Personal Income Tax was then amended and supplemented with a number of articles to be more compliant with reality (TinLaw, n.d.)

1.3 Characteristics of Personal Income Tax

Worldwide, PIT has some of the following characteristics:

Firstly, it is a domestic direct tax imposed on personal income The "direct" nature

is reflected in the fact that the taxpayer is also the one who bears tax liability, so the taxpayer cannot transfer the tax burden to others Due to the direct taxation on the income

Thirdly, it usually applies progressive tax rates This characteristic makes the PIT fairer than other taxes because it influences the economic ability of the taxpayer While there is a large gap between the rich and the poor, the law on PIT obliges high-income people to pay more tax than middle- and low-income ones, contributing to ensuring social equity

Fourthly, it takes into account worldwide employment income The PIT is levied

on the incomes of the residents regardless of the origin of the sources

And finally, it is an important source for the state budget PIT contributes to the common interests of the country such as the construction of infrastructure, roads, bridges, health services, education, defense, etc

1.4 The importance of Personal Income Tax

PIT plays an indispensable and undeniable role in state management and social administration

Firstly, PIT is one of the important sources of the state budget Vietnam is in the progress of international integration through the signing of free trade agreements such

as EVFTA, CPTPP, etc The policies to minimise import and export taxes are thus also improved Therefore, personal income tax becomes an important source of the state budget As international trade develops and the qualification of citizens increases, personal income will also rise As a consequence, submitting PIT is a mandatory and obvious obligation of every individual in the country To give an illustration of the importance of PIT, below is the contribution of PIT to the total tax revenue of Vietnam compared with other regions around the world in 2022

Figure 1.1 Tax structure compared to the regional averages

(Source:OECD, 2022)

As can be seen from the Figure, PIT accounted for 8% of Vietnam's total tax income

in 2022 This proves that PIT still plays a certain role in the State budget Nevertheless, the percentage of PIT's contribution in Vietnam was less than that of the world as the income per capita in Vietnam is still much smaller than other countries in the world In the context that Vietnam is in the process of development and international integration, the percentage of PIT in this figure will be expected to improve

Secondly, PIT contributes to social equity within a nation Although Vietnam is one

of the fastest-growing countries, the disparity between rich and poor still exists clearly

in big cities To ensure fairness, PIT is only applied to individuals with middle and high income, not to individuals with low income, who are just able to feed themselves and their families In terms of social equity and macro management, PIT has an extremely important position for the government to ensure the implementation of the social equity policy (YTHO, 2015)

Thirdly, PIT is viewed as a tool to aid in macroeconomic regulation, and encourage saving and investment geared at enhancing societal efficiency Personal income tax plays

a significant role in expanding social welfare systems by lowering the income of high earners and transferring it to poorer earners (Einvoice.vn, 2021)

6

Finally, PIT helps to detect illegal income In reality, not all sources of an individual's income are obvious and legal Filing PIT according to the law will help the state easily get information about income sources transparently and have deterrent and sanction measures for individuals who commit misconduct and fraud in paying taxes In particular, illegal incomes can be bribery, embezzlement, trading in banned national goods, tax evasion, fraud, and appropriation of property (Einvoice.vn, 2021)

1.5 International experience in the application of Personal Income Tax

1.5.1 Overview of Personal Income Tax application around the world

Most countries in the world apply PIT, but the method they apply varies from country to country, or even among different regions in a nation Having said that, most

of the countries in the world are applying progressive tax rates for PIT to better narrow the gap between the rich and the poor in society, ensuring the equity of the tax system Basically, PIT is a central tax for most countries Some countries also have additional local tax (Canada, Finland, etc.) and surtax (Croatia, France, Germany, etc.) Generally, the more developed a country, the higher the tax rates are According to the latest data by the OECD, the countries with the highest rate of PIT are Portugal (up

to 47.2%), Slovenia (up to 50%), Belgium (up to 50%), Finland (central tax up to 31.25%, local tax up to 23.5%, and church tax up to 2.2%), Sweden (up to 57.1%), Japan (up to 55.9%), Denmark (up to 55.9%), France (up to 55.4%), the Netherlands (up to 52.0%), Ireland (up to 48.0%) The US ranks 17th on the list with a progressive tax rate

of up to 43.7% (Diem Ngoc, 2021)

1.5.2 Personal Income Tax in Southeast Asia

In Southeast Asia, most countries have PIT as a central tax with progressive tax rates for residents The tax rates spread and the number of brackets also vary among countries (Table 1.1) For non-residents, the rates can be either progressive or flat depending on each nation Currently, only Brunei does not levy personal income tax on its citizens, while Myanmar does not have clear tax schedules for PIT To view the detailed tax rates of each nation, please refer to Appendix 1

Nation Lowest tax rate Highest tax rate Number of brackets

8

Figure 1.2 Comparing progressive tax rates for residents of Southeast Asian nations with GDP per capita

(Source: ASEAN Briefing, 2018)

As can be seen from the table and the chart, although Singapore is a comparatively more developed country than the others, it has relatively low tax rates for PIT but the GDP per capita of Singapore is the highest in the region Actually, the overall tax system

in Singapore has such low tax rates that it has become known as a tax haven in Southeast Asia Singapore also offers tax exemptions for incomes derived from capital gains such

as stocks, bonds, and other securities This encourages its citizens to work harder, stimulates the investment of individuals inside the country as well as facilitates the inflow of FDI from foreign companies planning to expand to the Asian market Altogether, this makes the island an international hub for business and investment (Kopp, 2021) For this reason, we can say that Singapore benefits greatly from its justifiable tax system

By contrast, although Laos, Cambodia, Myanmar, and Timor-Leste also impose relatively low tax rates on their individuals, they are still less developed than other nations in the region The reason may be that the average income of the national citizen falls into the 0% tax bracket, which means that most of its citizens do not have to pay PIT, and hence, the countries do not obtain much tax revenue to fund the budget Also, their tax system is still underdeveloped compared with other nations.

1.5.3 Personal Income Tax in the US

One country that has a special way of tax calculation is the US Unlike many countries that calculate PIT based on gross income, the US Internal Revenue Service calculates taxable income based on each individual's net income, which is income minus reinvestment and other living expenses However, the portion of income earned from investments will be taxed in subsequent years if the citizens cease to invest This calculation method encourages its residents to reinvest in the national economy, and thus enable it to grow

Additionally, charitable contributions are listed among the tax exemptions Because of this, Americans who desire to lower their tax rate frequently donate the surplus money to charity, contributing to the cause of income re-distribution Also, the law divides its taxpayers into 4 categories: the married filing joint returns, the married filing separate returns, heads of household, and single individuals Each of these categories will have a different tax schedule and tax deduction (Appendix 2) This shows that the US law takes into consideration the detailed situation of each household

as well as the status of non-residents inside the country

1.5.4 Trends in policy adjustments

In the last few years, there are some general trends in the adjustment of PIT policies

in many countries, such as increasing the threshold of taxable income, increasing the tax deductions based on family circumstances, increasing the tax rate for the high income, and vice versa, expanding the scope of incomes subject to PIT (including incomes from won prizes), etc in order to better re-distribute social income among the rich and the poor

10

For example, in Singapore, since 2017, the tax rates have increased from 17% to 18% for assessable incomes from 160,000 to 200,000 SGD and from 20% to 22% for assessable incomes above 320,000 SGD (Truc Thanh Le, 2020)

In Thailand, the tax deductions based on family circumstances are raised from 30,000 THB to 60,000 THB for dependents being spouses without income, and from 15,000 THB (limited to three children) to 30,000 THB (unlimited number of children) for dependents being children At the same time, the income threshold subject to the highest tax rate (35%) is raised from above 4,000,000 THB to above 5,000,000 THB (Truc Thanh Le, 2020)

Generally, the intended purpose of the adjustment on PIT is to not only ensure state budget revenue, but also redistribute income, reduce tax evasion and avoidance, and create motivation for people to increase income, thereby increasing the consumption of goods, and promoting economic growth

Chapter 2 ANALYSIS OF PERSONAL INCOME TAX IN VIETNAM 2.1 General provisions of Personal Income Tax

Vietnamese law on Personal Income Tax Law No 04/2007/QH12 dated June 3,

2008, conducted by the National Assembly, was in force from January 1, 2009, was amended and supplemented by:

Law No 26/2012/QH13 dated November 22, 2012, "Amending And Supplementing

A Number Of Articles Of The Law On Personal Income Tax", was in force from July 01,

2013 The law stated that:

The personal income amount counted as VND 9 million/year (VND 108 million/year) is the minimum amount to be counted as taxable income

In case the Consumer Price Index (CPI) changes over 20% compared to the effective time of the Law or the latest time point of adjusting the reduction based on family circumstances, the Government submits to the Standing committee of the National Assembly for adjustment of the reduction based on family circumstances specified in this clause in conformity with changes of price in order to apply for the next tax term

Incomes earned from the transfer of real estate under any form are taxable income Person transfer of securities can declare and pay provisionally their incomes at any point of time in the year

Retirement pensions paid by the Social Insurance Fund; retirement pensions paid monthly by the Voluntary Retirement Fund are Non-taxable income

Law No 71/2014/QH13 dated November 26, 2014, "Amending And Supplementing

A Number Of Articles Of The Law On Personal Income Tax", was in force from Jan 01,

2015. It stated that personal income from the personal profit that counted less than VND

100 million/year is non-taxable income

Resolution No 953/2020/UBTVQH14 dated June 02, 2020, "Amending Of Tax Deduction Based On Family Circumstances Of The Law On Personal Income Tax", was

in force from July 01, 2020 The Resolution stated in Article 1 that: Instead of US$387 (VND 9 million), a resident taxpayer will now be entitled to deduct US$475 (VND 11

12

million) from his taxable income The new rule will take effect on January 1, 2020, and will be retroactive Whether or whether the person received income each month has no bearing on the ability to deduct the entire annual amount

2.2 Detail provisions of Personal Income Tax

2.2.1 Taxpayers

Pursuant to the Article 2 of Law No.04/2007/QH12, taxpayers are residents who are inside and outside the Vietnamese territory and non-residents who are inside the Vietnamese territory They earn taxable incomes which are specified in Article 3 of this Law and in the following part of this essay

Resident is defined as a person who has either a place of habitual residence in Vietnam, which is a registered place of permanent residence or a rented house for habitation in Vietnam under a term rent contract, or who is present in Vietnam for 183 days or more in a calendar year or 12 consecutive months counting from the first date of their presence

A non-resident is someone who does not meet any of the requirements listed above

No matter where the money is generated or paid, tax residents are liable to PIT at progressive rates ranging from 5% to a maximum of 35% on their worldwide employment income Non-resident taxpayers who receive income from Vietnam are liable to PIT at a flat rate of 20%

2.2.2 Taxable incomes

Pursuant to the Article 2 of Law No.04/2007/QH12, the following are the ten categories of earnings that are subject to PIT:

Profits from business operations;

Wages paid by employers;

Investment in the capital;

Transfer of capital;

Prizes for property transfers;

Royalties;

Business franchising;

Securities, capital contributions to enterprises or economic organisations, real estate, and other assets requiring registration of ownership or use of right; and

Securities gifts, capital donations to businesses or economic groups, real land, and other assets needing registration of ownership or usage rights

Income received from governmental or non-governmental foreign aid for charity or humanitarian purposes is approved by competent state agencies

2.2.4 Tax reduction

Pursuant to the Article 5 of Law No.04/2007/QH12, Article 19 of Law No.04/2007/QH12, Article 20 of Law No.04/2007/QH12, Article 21 of Law No.04/2007/QH12, which was amended and supplemented by Resolution No

953/2020/UBTVQH14, taxpayers who have problems due to serious illnesses, fires, accidents, or natural disasters that limit their capacity to pay their taxes may be eligible