An economist argues that Vietnam needs to start taxing the rich and easing off the poor
A cyclo driver reads a newspaper outside an electronics store in downtown Ho Chi Minh City. Dr. Nguyen Minh Phong of the Hanoi Socioeconomic Research Institute says that taxes should be adjusted to meet the current economic reality.
Vietnam's personal income tax policy hasn't changed since it took effect two years ago - even as inflation and earnings have soared.
The rich remain largely untaxed while the poor are being squeezed. Taxes should be adjusted to meet the current economic reality, Dr. Nguyen Minh Phong of the Hanoi Socioeconomic Research Institute told Thanh Nien Weekly, in an interview.
Thanh Nien Weekly: What are the principal problems with the current personal income tax law?
Nguyen Minh Phong: It's fairly common for the state to improve and amend enacted laws. The taxable income threshold now is too low, and the procedures for pursuing a tax refund are still too complicated. Ideally, these issues will be resolved by the next set of laws.
However, the expansion of the number of tax payers and the increase of the state budget from tax collection has occurred in an unreasonable fashion. The state coffers are being expanded with money from the poor.
I also feel that we should increase taxes on those earning high incomes. In 2010, we imported luxury goods worth US$10 billion (compared to the year's trade deficit of $12 billion). This showed that there is a consumption class earning very high incomes, which have not yet been strictly managed.
The income tax law has been applied rather indiscriminately.
Taxes should specifically target high income earners, limit spending on luxury items, ensure social equality, and increase the state budget.
How should we adjust the personal income tax law?
After the personal income tax was approved (three years ago) inflation rose by 40 percent. Naturally, the taxable income threshold should also rise by at least 40 percent.
The minimum taxable income should not be set at VND4 million ($190.5), as inflation, minimum wage and living standards change every year. Instead the number should remain fluid and the threshold should be set as a percentage of the minimum wage.
A monthly income of VND10 million, per person, should prove a reasonable living wage.
For me, the taxable threshold should be calculated based on the government-set minimum wage maybe 7-10 times that sum. The use of a fixed sum (as the taxable threshold) creates problems to the law's implementation, as it needs to be constantly adjusted to keep up with wage increases. The procedures for amending national laws are very complicated.
How do other countries collect personal income tax?
Different countries use different methods to collect personal income taxes. Most importantly, they have a good infrastructure for tax calculation. In many other countries, all earning and spending is filtered through the banking system. As a result, people's total income is accurately documented; calculating their taxable income is relatively easy.
In our country, commerce occurs in a less formal way. Under our system, a great deal of taxable wages falls through the cracks.
Some worry that it may take so long to amend the personal income tax law that it will be obsolete by the time it's implemented. Do you believe it's possible to create a reasonable tax law?
Sometimes, laws are too rigid, making implementation difficult.
This time, we should create a more stable foundation by calculating the tax rate as a percentage of the minimum salary - whatever that may be. By establishing the minimum as a percentage, the government will eschew the need for legislative amendments, which require approval from the National Assembly.
INCOME TAX - A BRIEF HISTORY
Current tax law was approved in late 2007 and took effect in January 2009.
The statute established a taxable monthly income threshold of VND4 million and a progressive tax scale.
The more you made, the more you paid. It also established a system of deductions.
Tax payers were allowed to deduct VND1.6 million for each dependent who does not earn more than VND500,000 per month.
Since the law was approved, inflation has sharply risen. The country's consumer price index (CPI) jumped by 12.63 percent in 2007, and 22.33 percent in 2008 before slowing to 6.88 percent in 2009. The CPI increased by 11.75 percent in 2010.
As of last December, 7.2 million (of the country's 86 million people) were subject to the personal income tax law, according to the General Department of Tax.