Vietnam Law & Legal Forum Magazine is your gateway to the law of Vietnam

Official Gazette

Friday, January 27, 2023

Tax policies of 2013

Updated: 11:15’ - 06/02/2013

Nguyen Van Phung, senior expert

Deputy director - Tax Policy Department

Ministry of Finance

In 2013, tax policies are implemented in the context when the country’s economy is anticipated to face more difficulties than the last year. How will medium- and long-term tax policies under the 2011-20 tax reform strategy be concretized and what are their contents given the socio-economic conditions are much different from those when the strategy was submitted. What are solutions related to tax administration policies and mechanisms to implement the socio-economic development objectives and tasks set by the National Assembly for 2013? These questions will be addressed in this article.

I. Revision of major taxes in the medium and long term

The 2011-20 tax reform strategy, approved by the Prime Minister in 2010, sets out the following general objectives: “To formulate comprehensive, unified, equal and effective tax policies which are in line with socialist-oriented market economic institutions; to set a rational tax mobilization rate to encourage domestic production as an effective instrument of macroeconomic management; to build a modern and effective tax system; to perform uniform, transparent, simple and feasible tax, charge and fee management based on the following three fundamental foundations: transparent tax institutions and policies and simple and scientific tax-related administrative procedures in conformity with international practices; quality and upright human resources; and modern, connected, integrated and automated information technology.”

The strategy sets a state budget mobilization rate of 23-24% of the GDP during 2011-15, of which the tax, charge and fee mobilization rate is 22-23% of the GDP, with the annual average growth rate of tax, charge and fee revenues reaching 16-18%. For the subsequent period from 2016 to 2020, the strategy just stipulates that these rates will be reasonable in the direction of reducing the tax mobilization rate per unit of goods or service in order to stimulate competition and accumulate capital for production and business. At the moment, the restructuring of the tax system and adjustment of each kind of tax are being implemented as follows:

1. Personal Income Tax (PIT) Law has been amended for the first time after four years of implementation. The amendments to the Law will take effect on July 1, 2013. Its guiding documents are being drafted and expected to be issued in the first quarter of 2013. Major amendments include:

(i) Reducing personal income tax on wages, salaries and businesses through increasing family circumstance-based reductions from VND 4 million per month (VND 48 million per year) to VND 9 million per month (VND 108 million per year); and raising the reduction for each dependant to VND 3.6 million per month, from the current VND 1.6 million per month;

(ii) Revising regulations on taxable incomes, such as change of allowances excluded from taxable incomes; adding more types of deductions when calculating taxable incomes such as contributions to the voluntary pension fund and exemption on incomes from this fund in the future; and,

(iii) Revising regulations on tax administration and declaration by increasing responsibilities of income payers and simplifying PIT declaration and finalization procedures for some kinds of income.

2. The Tax Administration Law was also revised by the National Assembly in November 2012. The revised regulations will come into force on July 1, 2013. Functional agencies are drafting guiding documents for implementing the Law’s 19 revised contents categorized into three major groups of issues:

(i) Stepping up the administrative procedure reform (reducing the tax declaration frequency from 12 times to four times a year, for small- and medium-sized taxpayers; shortening the settling time for tax extension and refund; simplifying tax refund and tax debt write-off procedures; and supplementing regulations on post-tax refund examination);

(ii) Promoting tax administration reform and modernization as a basis for the application of advanced management measures like risk management; advance pricing agreement (APA); mechanism for classifying numeral codes and identifying the value and origin of goods before import/export; use of foreign-source information under tax agreements; taxpayers’ obligation to apply information technology for e-tax development; and,

(iii) Issuing additional regulations aiming to raise the effect and efficiency of tax administration such as setting a duty payment time limit for imports and exports; establishing an order of payment for taxes and fines; extending tax payment time limits for establishments that must be relocated or owe tax as a result of late payment by the state budget; installment payment of taxes for taxpayers facing difficulties; write-off of tax debts which are hard to be recovered after all tax coercion measures have been applied.

3. The Corporate Income Tax (CIT) Law is slated to be revised in 2013 for application from 2014. Its principal amendments aim to build a more favorable business environment, further promote investment, reduce the tax mobilization rate together with raising the effectiveness of allocation of social resources, specifically:

(i) Reducing the tax mobilization rate from 25% to 23% (or to 20% for small- and medium-sized businesses);

(ii) Adding some CIT-exempt incomes;

(iii) Further simplifying and making transparent regulations on deductible revenues and expenses when determining taxable incomes, tax-exempt incomes, separate accounting of incomes of different kinds, and carrying forward of losses on market principles, creating the most favorable conditions for businesses, including re-considering advertising and sale promotion expenses, and assuring financial stability and security for businesses; and,

(iv) Providing tax incentives to attract investment in some sectors and geographical areas such as tax incentives for expanded investment, application of high technologies, clean and environment-friendly technologies, and investment in the socialized sectors.

The draft Law revising a number of articles of the CIT Law was submitted to the Government’s January 2013 regular meeting for comment.

4. Amendments to the Value-Added Tax (VAT) Law are expected to be submitted to the National Assembly for discussion at its May 2013 session and for approval at its year-end session. The proposed amendments include:

(i) Prescribing a turnover threshold for VAT imposition so as to uniformly apply the tax credit measure (those having turnover below this threshold will apply a simple tax calculation method at a low rate);

(ii) Scrutinizing the current 25 groups of non-taxable goods and services in order to issue more specific regulations on financial, lending, money printing and public services, and printed products being cash;

(iii) Issuing technical regulations on taxed prices, tax calculation methods, tax credit and refund; and,

(iv) More carefully re-considering VAT rates in the context that agriculture and rural areas have not yet seen any step of development and remain vulnerable in the process of economic development and integration.

5. Other taxes are also reviewed, studied and implemented according to the set roadmap, specifically:

(i) Further reducing import and export duties in line with free trade agreements;

(ii) Reviewing royalty rates for natural resources and minerals; and,

(iii) Reviewing regulations in order to adjust and add some charges and fees, including the registration fee for a number of assets with a view to rationally addressing the relationship between consumers and asset transferors, state and the capacity of the State and localities to provide public services and the development of the market and production and business sectors related to assets subject to registration.

II. Short-term tax solutions for removing difficulties in manufacture and business, and supporting the market

Implementing the socio-economic development objectives and tasks of curbing inflation, stabilizing the macro-economy, assuring social protection and step by step restructuring the economy through raising its quality, effectiveness and competitiveness, set by the National Assembly  for 2013, the Ministry of Finance proposed the Government to issue Resolution No. 02 in early 2013 on a number of solutions for removing difficulties for production, business, supporting the market and dealing with bad debts. Of these solutions, tax breaks have received attention from the business community.

Below are the specific contents of tax solutions related to the operation of businesses as proposed by the Ministry of Finance to the Government. Solutions listed at Points 1 thru 4 fall within the Government’s competence, while solutions listed at Point 5 come under the National Assembly’s competence.

1. General solutions for businesses:

With the aim of helping the business community minimize production and business input costs, along with proposals for lower credit interest rates, the following measures related to import duty, land rents and charges and fees will be applied in 2013:

Firstly, within the framework of international commitments and the  competence of the Ministry of Finance, the Minister will issue circulars to administer import and export duties in 2013. Accordingly, together with slashing thousands of tax lines according to the set roadmap, imports being domestically unavailable raw materials, components and accessories will enjoy faster duty cuts. Meanwhile, for imports which domestic businesses have been able to manufacture with an output meeting the domestic demand, they will be subject to the committed ceiling duty rate in order to promote domestic production.

Secondly, the Government commits not to issue regulations on collection of the charge per vehicle for restricting road motor vehicles (including also personal vehicles). Functional agencies are expeditiously revising the government decree on the registration fee, under which the registration fee of 10% will apply to cars registered for the first time, which may be adjusted by up to 50% (instead of the current maximum 20%) by localities; or the registration fee of up to 2% will be applicable nationwide to cars registered from the second time on. Vehicles used for production and business activities (e.g., goods transportation vehicles) will be eligible for a rate much lower than that applicable to personal tourist cars. The reduction of the registration fee aims to not only reduce businesses’ input expenses, promote the use of products of the automobile industry but also encourage people to voluntarily make registration and transfer ownership of their vehicles, and facilitate management work as well.

Thirdly, land rents in 2013 and 2014 will be halved for economic institutions, households and individuals that are leased land by the State and pay land rents under Decree No. 121 of 2010 more than two times the 2010 rent rate (according to the policy on land rent collection applied prior to the effective date of Decree 121). Compared to the 2012 policy, the new policy is more preferential be cause, after being reduced, if the land rent still more than two times higher the payable land rent of 2010, it will be further reduced to the level equal to two times. At the same time, regulations on land rent declaration and reduction procedures will be simplified and even applicable to cases eligible for land rent reduction in 2012 but not yet settled due to dossier-related problems.

Fourthly, together with the above policy solutions, management measures and the provision of public services will be improved and implemented in a unified manner, such as: (i)  shortening the customs clearance duration, promoting online tax declaration, and via-bank tax payment and automatic processing of tax and customs dossiers and procedures (the expected result is to reduce 10-15% of customs and tax declaration expenses for individuals, organizations and the business community) and (ii) other measures include stepping up the monitoring, examination and control of tax declaration, payment and refund; enhancing review and cross-check for promptly detecting frauds related to documents, invoices or tax registration with a view to protecting, and reducing risks for, lawfully operating businesses.

2. Dealing with environmental protection tax (EPT) for businesses using plastic bags as packages and businesses having products subject to EPT

Decree No. 69 of 2012 amending Clause 3, Article 2 of Decree No. 67 of 2011 guiding a number of articles of the EPT Law will be strictly implemented. Accordingly, EPT will not be imposed on thin plastic bags and packages used for packaging commodities and on environment-friendly plastic bags after businesses obtain certificates of environment- friendly plastic bags under regulations of the Ministry of Natural Resources and Environment. Businesses that import such bags or packages or buy them from domestic producers are only required to make a commitment in their economic contracts (or customs declarations for imports) in order to pay prices exclusive of EPT. This is also a ground for EPT exemption for plastic bag or packing producers.

The EPT amounts paid in 2012 for plastic bags used as product packages under Decree 69 will be refunded to paying businesses.

3. For small- and medium-sized businesses and labor-intensive businesses in certain fields

Although small- and medium-sized businesses account for a majority in the business community, their financial and administration capacities are weaker than large ones, which is reflected in two indicators: The number of full-time laborers is 200 at most and the annual turnover does not exceed VND 20 billion.

A labor-intensive business is identified based on the criterion that it employs more than 300 laborers in the following sectors: agricultural, forest and aquatic production and processing; textiles and garments; footwear and electronic components; and construction of socio-economic infrastructure works. These businesses have enjoyed tax incentives in 2012 under Government and National Assembly resolutions.

In 2013, tax solutions falling within the Government’s competence applicable to small- and medium-sized businesses and labor-intensive businesses in certain fields include:

- Six-month extension of the payment time limit for CIT amounts payable in the first quarter and a 3-month extension of the payment time limit for payable BIT amounts in the second and third quarters of 2013. Accordingly, the payment of CIT amounts temporarily calculated in the first and second quarters of 2013 will be delayed until October 30, 2013, and of those payable in the third quarter of 2013 - until January 2014. However, this extension is not applicable to CIT amounts for revenues from activities of finance and banking, insurance, securities, lottery, prize-winning games, or trading in goods and provision of services liable to special consumption tax.

- Six-month extension of the payment time limit for VAT amounts payable in January, February and March of 2013. Specifically, the payment of VAT amounts payable in January will be delayed until August 20, 2013; those payable in February - until September 20, 2013; and those payable in March - until October 20, 2013.

4. For real estate businesses:

Tax payment extension policy will apply to housing businesses, regardless of their size, type and number of employed laborers, under which the sale, lease and lease-purchase of houses (even by house-building businesses and house-trading businesses) are eligible for a 6-month extension of the CIT or VAT payment time limit like small- and medium-sized businesses.

For construction material producers that face difficulties due to the declining real estate market as well as less spending and investment of the people, extension of the payment time limit is granted to those paying VAT according to the credit method and producing such construction materials as steel, iron, cement, bricks and tiles. For businesses producing and trading in more than one commodity, extension will be granted only for VAT amounts payable for houses, steel, iron, cement, bricks and tiles.

To help investors, who have difficulties in raising capital for implementing real estate projects, extension of land use levy payment will be granted for investors of projects that have been allocated land by the State but have not yet paid land use levy. Investors meeting with financial difficulties may, instead of paying land use levy as notified, pay it according to the payment schedule within 24 months after receiving a tax agency’s payment notice. Since the Law on the State Budget allows local administrations to retain all land use levy revenues, provincial-level People’s Committees may consider and decide on the duration of extension of land use levy payment for each project based on the local budget capacity after reporting to provincial-level People’s Councils.

5. Solutions to be submitted to the National Assembly’s session in May 2013:

Under its legislative program, the National Assembly will pass at its May 2013 session the Law Revising a Number of Articles of the CIT Law for application from 2014, aiming to create a more favorable business environment, further promote investment, reduce the tax rate and raise the efficiency of distribution of social resources. Major amendments include:

(i) Reducing the tax rate from 25% to 23%, or 20% for small- and medium-sized businesses;

(ii) Applying tax incentives for expanded investment in the sectors or geographical areas in which investment is encouraged; and,

(iii) Further simplifying and making transparent regulations on deductible revenues and expenditures when determining taxable incomes; tax-exempt incomes; separate accounting of different incomes; carrying forward of losses, etc.

Within the ambit of its competence of the Ministry of Finance will, as authorized by the Prime Minister, propose tax policy solutions for application in 2013 to the National Assembly for consideration and decision, specifically:

- Permitting small- and medium-sized businesses to apply the CIT rate of 20% from July 1, 2013 (six months earlier than the set roadmap for implementing the Law Revising a Number of Articles of the CIT Law). Small- and medium-sized businesses are identified based on the new criteria and actual figures of the last two years (for operating businesses) or identified by self-declaration (for businesses having conducted business activities for less than two years).

- Applying the preferential CIT rate of 10% from July 1, 2013, for incomes from investment and commercial operation (lease or lease-purchase) of social houses. Social houses are identified in accordance with the housing law.

- Giving 30% reduction of the output VAT amount from July 1, 2013, through June 30, 2014, for investment - commercial operation (sale, lease or lease-purchase) of apartments having a floor area of under 70 m2 and a selling price of under VND 15 million/m2. With this reduced rate, based on current construction costs, businesses will not be required to pay VAT for one year for low-cost and small houses.

- Adding tax incentives for expanded investment in the sectors and geographical areas eligible for incentives under the CIT Law for application from July 1, 2013 (six months earlier than the set roadmap for implementing the Law Amending and Supplementing a Number of Articles of the CIT Law). The tax exemption or reduction duration for expanded investment equals that for newly established businesses in the same geographical areas and sectors eligible for CIT incentives.

It is expected that the above tax policy solutions will be soon approved by the Government and the National Assembly for synchronous application, contributing to removing difficulties for production and business activities and supporting the market as a momentum for the economy’s development.-

VNL_KH1 

Send Us Your Comments:

See also:

Video

Vietnam Law & Legal Forum