Factory workers change shifts at the Thang Long Industrial Park outside of Hanoi. The government is seeking approval from the National Assembly to suspend tax collection from those with a monthly income of less than VND9 million (US$440).
The Ministry of Finance has submitted a proposal on tax breaks that will last through the end of 2012 to the National Assembly for approval at its upcoming session later this month. If it is approved, the policy will take effect on August 1.
The move aims to provide practical support to taxpayers struggling with high inflation, Deputy Finance Minister Do Hoang Anh Tuan tells Thanh Nien Weekly.
Thanh Nien Weekly: Who are the target beneficiaries of this policy?
Do Hoang Anh Tuan: The government has proposed to the National Assembly that it cuts value-added tax and income tax by half for households and firms engaged in providing services for industrial park workers building houses for rent, running kindergartens, selling food to shift workers and so on. Those who enjoy the tax relief will have to commit to retain prices that prevailed in late 2010. This is an important measure which will have great impact.
The Ministry of Finance has also proposed that the National Assembly exempts personal income tax on dividends earned from stock investments. Now they have to pay a tax of 5 percent. This aims to ensure that they are not at a disadvantage compared with depositors at banks. Investors in the fields of banking, financial investment and other investment funds are not subject to this policy, which is designed to encourage investment in production and trade.
We have also proposed exemption for capital gains tax, as the stock market is down now.
Those who currently pay the personal income tax at the lowest threshold (monthly income of less than VND9 million, or around US$440) would also enjoy the exemption.
We have also proposed suspending collection of corporate income tax from both small- and medium-sized enterprises, as well as labor-intensive ones.
How many companies are likely to enjoy these tax breaks?
According to our estimates, there are some 504,000 firms in the country, of which 360,000 are small- and medium-sized ones and 6,000-7,000 are labor-intensive ones. According to tax agencies, more than 70 percent of these firms earn profits from their businesses, thus some 300,000-310,000 firms will benefit from the policy.
Does the policy promote fairness?
Through discussions with sectors and localities and our own fact-finding efforts, we feel it can promote fairness, because small- and medium-sized enterprises are at a disadvantage in the current context.
The government plans to regulate a common minimum salary level for employees at both foreign invested and local firms, and increase the minimum salary from October 1. This, coupled with the tax breaks, would encourage smaller firms to develop. We think that they need the encouragement now.
How would the tax break affect revenues for the state budget?
We have calculated and tried to take measures decided by the prime minister to ensure that budget revenues are not greatly impacted by the tax relief. We will try to increase other revenues so that the government's target of keeping the budget deficit at below 5 percent of the GDP is met.
You are calculating tax based on salaries, but real income of local people is very different from their official salaries. In the current context of soaring consumer prices, this calculation does not seem suitable. Should there be a comprehensive change in approach?
You are right. We have a plan for this. The government will propose to the National Assembly that the personal income tax law is amended in October 2012. At that time, issues of interest for local residents and workers, like taxable thresholds and deductions, will be studied and incorporated in a fundamental, scientific manner under a legal process. While drafting the amended law, we will collect opinions from firms, workers and other people to come up with the best plan to submit to the National Assembly.
In addition to the tax relief, transfer pricing among foreign invested and local firms has been a hot issue. What are your thoughts on this?
Transfer pricing among foreign invested firms refers to transactions among members of the same company that allow allocation of profits to lower-tax countries. Meanwhile, firms in Vietnam conduct transfer pricing by allocating profits to firms that receive preferential tax treatment.
This year, the main duty of the tax sector is to strengthen surveillance and inspection to prevent illegal transfer pricing. We plan to inspect 8,000 firms and verify tax payments of 26,000 others. Inspections carried out in the first five months of this year show that transfer pricing has been controlled in some localities. For example, corporate income tax collection from foreign invested firms in Ho Chi Minh City has increased by 50 percent over the same period last year, while the number of firms suffering losses fell to below 30 percent.
Regular inspections can help prevent transfer pricing, contribute to increasing state budget revenues, and promote social equality.