Debates on proposed VAT Law Amendments over revenue thresholds

March 04, 2024 - 07:16
Many stakeholders argue that the Ministry of Finance's proposed threshold of VNĐ150 million is still relatively low.
A souvenir shop in Hà Nội. The Ministry of Finance proposes to require individuals and household businesses earning VNĐ150 million (US$6,250) annually to pay VAT. — Photo

Compiled by Mai Hương

In the proposed amendments to the Value Added Tax (VAT) Law, the Ministry of Finance has put forward a revision that would require individuals and household business with an annual revenue of VNĐ150 million (US$6,250) to pay VAT, an increase of VNĐ50 million from the current threshold. However, this proposal has sparked a range of differing opinions and concerns.

The ministry argues that since the 2013 amendment to the VAT Law, which supplemented some provisions of the 2008 VAT Law, the Consumer Price Index (CPI) has seen a significant increase. Therefore, adjusting the revenue threshold for individuals and household business to reflect these price fluctuations is deemed necessary.

Furthermore, the Ministry of Finance asserts that increasing the revenue threshold for VAT would not result in additional compliance costs or administrative procedures. Instead, it would enhance tax transparency.

However, many stakeholders argue that the proposed threshold is still relatively low. They suggest that industry-specific considerations should be taken into account.

In its feedback to the Ministry of Finance, the Vietnam Chamber of Commerce and Industry (VCCI) recommends the drafting agency consider raising the revenue threshold for tax-exempt households and individual businesses to a range of VNĐ180 million to VNĐ200 million.

Moreover, VCCI suggests that the Ministry of Finance should consider industry-specific classifications, similar to the direct tax calculation method used in the distribution and supply sector. This would involve setting a higher threshold for goods distribution compared to services and construction.

The highest proposed threshold came from representatives from Quảng Ngãi Province who have suggested to raise it to VNĐ300 million, while other agencies proposed believed lower levels were the best way forward. The Ministry of Transport suggested VNĐ250 million, while the Vietnam Tax Consultants' Association (VTCA) recommended a threshold of between VNĐ180 million and VNĐ240 million.

According to VTCA, Decree 07 stipulates that the standard income for poor households in rural areas is VNĐ1.5 million per person per month, and in urban areas is VNĐ2 million per person per month. Therefore, someone earning VNĐ18 million a year would be considered "poor or near-poor".

VTCA's calculations suggest that, assuming a 10 per cent tax rate for the commercial business sector, the taxable income would be around VNĐ10 million. This means that after a business earns VNĐ150 million, the additional value would be VNĐ15 million, even below the national poverty standard.

Meanwhile, Dr Nguyễn Ngọc Tú, a lecturer at Hanoi University of Business and Technology, highlighted a discrepancy in the tax rates for business households and individuals. He explained that under current regulations, business households and individuals are subject to a flat corporate income tax rate of 1.5 per cent per year, calculated based on the previous period's revenue. This tax rate includes a 1 per cent VAT and a 0.5 per cent personal income tax.

Tú noted that this tax rate for individuals with revenue over VNĐ100 million is not in line with the Personal Income Tax Law, which the Minister of Finance has also considered outdated. Currently, the Ministry of Finance is seeking feedback on a draft Resolution to adjust the current personal income tax deduction of VNĐ11 million per month for taxpayers, equivalent to VNĐ132 million per year, excluding personal deductions. Therefore, personal income tax payers with two dependents will not be required to pay tax.

Tú argued that the proposal to increase the revenue threshold to VNĐ150 million per year is unreasonable because the VAT and personal income tax rates are not aligned. While individual wage earners must pay personal income tax, business individuals must pay both personal income tax and VAT simultaneously.

He recommended that when making adjustments to tax laws, the tax authority should consider the compatibility of the entire tax system. Additionally, Tú suggested that the Ministry of Finance could regulate tax calculations using the self- method, which would be adjusted annually based on the CPI price slide announced by the Ministry of Planning and Investment.

Ministry of Finance’ dismissal

Considering the impact on the State budget, in the latest draft amendment to the VAT Law, the Ministry of Finance maintains the proposed VAT revenue threshold for individuals and household business at VNĐ150 million.

According to the Ministry of Finance, this threshold is "based on inflation and actual conditions".

Raising the tax reduction threshold for household business to VNĐ180 million as some proposals suggest, the Ministry of Finance believes, would affect the State budget revenue in localities, especially those with low revenue.

In addition, this regulation would not encourage household business and individuals to switch to enterprises, as enterprises must pay VAT when they generate revenue.

For this matter, Nguyễn Văn Được, head of the Consultancy Board of the Vietnam Tax Consultants' Association, believes that internal sources can offset budget revenue shortfalls. He highlights the inadequacy of the advisory rate for presumptive tax on business households, leading to revenue loss. He suggests that taxation should review the process and check for fraudulent acts to ensure the security of flat tax revenue.

Được emphasised that the revenue threshold of VNĐ150 or VNĐ180 million is not the primary factor influencing households' decisions to start a business. Instead, they consider factors such as the institution, business environment, tax policy, and administrative procedures.

The Ministry of Finance plans to submit the draft law to the National Assembly for consideration and feedback at the 7th session meeting in May 2024 and to be passed at the 8th session in October 2024. — VNS