SOLUTION TO IMPROVE THE VIETNAMESE PERSONAL INCOME TAX SYSTEM IN THE CONTEXT OF INTERNATIONAL ECONOMIC INTEGRATION

HOANG THU THAO

【Abstract】Laws on Personal Income Tax in Vietnam officially effected and implemented in social, economic life on 01/01/2009. However, management of personal income tax is posing big challenges on managers. First of all, the law includes some new points as compared to Ordinance of Personal Income tax on high income earners, especially the regulation related to family situation to calculate taxable income. The implementation started in context of economic recession, stagnation in investments, increasing in unemployment and reduction in citizens income. Besides there are problems related to bilateral and multilateral commitments among countries about range for levying personal income tax. Due to those reasons, the author chose topic "Solution to improve the Vietnamese Personal Income Tax system in the context of international economic integration".

【Key words】Vietnam;Personal income tax;International economic integration

Doimoi,which means “renovation” with the goal of creating a "socialist-oriented market economy" was launched at the Sixth Party Congress in late 1986 was a momentous turning-point of Vietnam's history economy.Over two decades Vietnam has been integrating into the world economy.These changes have had dramatic implications for trade flows,investment flows and for economic growth in Vietnam. However, together with the international integration process,the current personal income tax system has shown many limitations and problems.Therefore, this paper focus on the solution to improve the system from an overall and comprehensive view of things.To reform the system in current condition, according to the author, firstly we have to focus on the policy, such as taxpayer,taxable income,tax rate and tax exemption and deduction.About the taxpayer,the expansion of subject is perfectly reasonable and sensible but it must ensure that taxpayers are still encouraged to work and do business to increase their income.Therefore, night shift or overtime salary should not be taxed.The way of determining taxable subjects between residents and non-residents should be match to ensure the fairness.Therefore,when determining the taxable income from the business of non-resident individuals,the provision to allow non-resident individuals deduct the reasonable expenses should be added. About the taxable income,in some cases such as the property owner exchange the land or house with the arising of income;or do some authorized contracts (but actually is selling) for the private real estate company to transfer the real estate, etc. Actually, this kind of operation is one form of the real property transfer.Therefore,the Clause 5 of Article 3 should be amended and supplemented with the additional provisions: income from real property transfers, comprising income from the exchange of any form of real estate,income from authorized estate transfer which is the authorization person has full rights on the estate in accordance with the provisions of the law.The threshold should be increased by at least 2 times the current one and based on the minimum wage, for example, 8-10 times the minimum wage of the business sector.However,with the requirements of welfare and civil security,social stability and other macro issues, it is necessary to apply the new threshold of personal income tax which is 10 times of the minimum wage in the business sector and should change every year according to the adjustment of the minimum wage. Following is the suggested tax tariff:

A reasonable reduction based on family circumstances should be 6 million/month.First,this reduction consist the consideration of the GDP growth rate and the growth of social income. Second, this reduction also considers the change in the consumer price index (CPI) in 2013;third,the reduction of 6 million VND/person/month is equal to 1.7 times of the expected GDP per capita in 2013,this rate is the highest rate, compared to other countries in the region.This level is 3.6 times higher than the minimum wage applicable to officers and employees(estimated at 1.67 million VND/month) and ensure that higher than the average income level of the society in 2013.Fourth,this deduction of family circumstance also can be ensured that the number of taxpayers will not decrease too much, and meet the long-term requirements is to expand the tax range,along with the growth of economics and the increase of population's income. Besides with international economic integration,the range of personal income searching is also wider,therefore the taxpayers have more choice about where to pay their income tax.If the residence criteria in the law on personal income tax are not fit for purpose,the taxpayers will be easy to change their residence to other countries where the tariffs are more competitive.In addition,in integration economy,domestic and foreign economic entities work together in domestic and foreign industries,and the business process is pretty complicated,so the risk of business fraud and tax evasion is also very high.Thus,income tax policy should be determined and clearly,be able not only to prevent from the old business fraud and tax evasion phenomena but also forecast the new phenomena. Since became a WTO member in January 2007,Vietnam has already cut its import tariffs on about 1,800 different tariff lines,the government has also committed itself to reducing import tariffs on 10,689 tax lines by an average of about 4 percent through 2013.The state revenue has been significantly reduced,therefore,the domestic income source need to be increased, in particular personal income tax, to compensate the loss of import and export duties.The importance of taxation is increased, certainly not reduced; especially when country receives large volumes of external assistance. On the basis of assessing current income tax,as well as studying and considering international experiences,this paper therefore considers ways to assist tax reform efforts in a more coherent and strategic way,including proposes the new recommendations for improving Vietnamese Income Tax Policy in the context of Global Economic Integration.Hopefully with such contributions can contribute to improve the country's tax policy in the upcoming period.