One personal income tax for both Vietnamese and foreigners

High-income earners, Vietnamese and foreign, may enjoy the same rate of personal income tax. The Ministry of Finance (MOF) has put the issue on the table

High-income earners, Vietnamese and foreign, may enjoy the same rate of personal income tax. The Ministry of Finance (MOF) has put the issue on the table.

Currently compiling the personal income tax (PIT) bill, MOF’s Tax Policy Department has proposed removing the discriminatory PIT differences that currently exist between Vietnamese and foreigners. The department’s Head, Quach Duc Phap, said that it is the right time to erase differences in PIT applied to locals and foreigners as required by Vietnamese partners upon Vietnam ’s accession to the WTO.

Under current regulations, stipulated by the Taxation Ordinance on High Income Earners, two tax schemes are valid for Vietnamese and foreigners. The threshold for taxation on Vietnamese is VND5mil, while it is VND8mil for foreigners. The two schemes have existed thus far despite several adjustments to taxation thresholds and rates.

According to Mr Phap, there are two methods for aligning PIT for Vietnamese and foreigners. With the first, adjustments would be made gradually over a medium to long-term plan. With the second, equal PIT rates would be applied soon after the PIT law comes into effect, around the beginning of 2008.Mr Phap, who advocates the second solution, said it is more appropriate to the current situation, as it ensures fairness and creates a level playing field for all individuals living and working in Vietnam .

The problem now is how to achieve equal PIT for both Vietnamese and foreigners: will the taxation threshold for Vietnamese be raised or will it be lowered for foreigners? Analysts say the first solution will not receive wide-spread support from taxation authorities as it will lower tax collection meaning a decrease to the state budget. Meanwhile, the second solution, will possibly discourage foreigners from living and working in Vietnam .

According to Mr Phap, if the second solution is chosen, there must be a special deductive regime applied to foreigners to ensure fairness and encourage foreign interest in Vietnam . Details regarding such a system have not yet been discussed.

Dinh Quynh Van, Director of Tax and Consulting at PricewaterhouseCoopers, an auditing and consulting firm, said that according to international practice, the regime may include personal deductions depending on family conditions, or some expenses being listed outside the bracket of taxable income. For example, the isolated post allowance, or school fees for children, may not be included when the taxation authorities define taxable income.

(Source: Vietnamnet)