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| A pho shop in Cau Giay district, Hanoi__Photo: Quoc Anh/VNA |
Under the current Law on Value-Added Tax (VAT), which was enacted more than 15 years ago in 2008, the VAT threshold applicable to business households and individuals is VND 100 million per year. In other words, any business household or individual that earns a turnover of roughly VND 280,000 per day will be liable to VAT. In the latest draft of the VAT Law, the Government proposed doubling the VAT threshold for these subjects to VND 200 million per year. But is the newly proposed tax threshold suitable to realities?
Obsolete tax threshold affects hundreds of thousands of small business households
First of all, it is necessary to affirm that the current VAT threshold of VND 100 million/year has become obsolete and needs to be adjusted as soon as possible.
Talking to the Tuoi Tre, Nguyen Van Hoang, a ride-hailing driver in Hoang Mai district, Hanoi, complained about tax burden on low-income workers.
In 2015, the price of petrol was just VND 18,000/liter but it has sharply increased over the recent years, even hitting the record high of approximately VND 30,000/liter before falling to the level of VND 22,000/liter as at present.
Due to the raise of petrol price, drivers’ revenues increase, however, not only does their income not improve correspondingly, but also it decreases. It is worth mentioning that all ride-hailing drivers are liable to VAT because their revenues far exceed the threshold of VND 280,000/day.
“Inadequate tax policies have been in existence for a long time and made workers’ life harder,” Hoang lamented.
Tran Thi Luyen, the owner of a small food shop in Hanoi, said all expense items, ranging from electricity, water and input material costs to space rental, rise every year. Ten years ago, a bowl of pho costed VND 25,000-30,000 but now it is VND 35,000-50,000. Hence, with the current VAT threshold of VND 100 million/year, even those who just sell 7-8 bowls of pho a day are liable to pay tax.
“Since the COVID-19 epidemic, small business people have struggled to survive. It is not to mention the fact that while the family circumstance-based deduction level for salaried workers was raised nearly thrice from VND 4 million to VND 9 million and then VND 11 million per month, the VAT threshold applicable to business households has remained the same over the past 10 years,” Luyen said.
Pointing out the inadequacies of the VAT Law, Assoc. Prof., Dr. Dinh Trong Thinh, a financial expert, said that the current tax threshold for business households is too low compared to realities. In 2014, the country’s per capita GDP was about VND 40 million, while in 2023, this figure reached VND 101.9 million, about 2.5 times higher.
How to devise an appropriate VAT policy for business households?
The Ministry of Finance (MOF), in the latest draft of the VAT Law, proposed two options on the revenue threshold applicable to households and individuals trading in VAT-liable goods or services.
Under the first option, the VAT threshold would be raised to VND 200 million/year. When the consumer price index (CPI) fluctuates by more than 20 percent, the Government would propose the National Assembly (NA) Standing Committee to adjust the VAT threshold to suit price fluctuations and socio-economic development conditions.
As for the second option, the VAT Law would not set a specific VAT threshold but should empower the Government to do so.
For the time being, opinions remain divergent on the proposed threshold of VND 200 million/year.
At a recent meeting of the NA Standing Committee, the NA’s Finance and Budget Committee suggested raising the VAT threshold to VND 200-300 million/year. As explained by the Committee, if being calculated on the basis of the average GDP and CPI growth rate from 2013 until now, the VAT threshold would be around VND 285 million/year.
The NA’s Finance and Budget Committee’s viewpoint is supported by many experts.
Dr. Nguyen Ngoc Tu, a senior tax expert, stressed the need to soon raise the VAT threshold correspondingly to the growth rate of GDP and CPI so that business households and individuals will no longer be placed at a disadvantage. “No matter which VAT threshold will be applied, VND 200 million or 300 million per year or any other specific level, the MOF should take GDP increase and fluctuations in CPI into consideration,” Dr. Tu talked with the Tuoi Tre.
The expert also noted that regulations on the VAT threshold must be consistent with the tax system. Under the current Law on Personal Income Tax (PIT), a taxpayer is entitled to a family circumstance-based deductions of VND 11 million/month for himself, i.e., salaried employees are only subject to PIT for the income exceeding VND 132 million/year, not to mention the deduction of VND 4.4 million/month for each dependent. Against the backdrop that family circumstance-based deductions for PIT payers will likely be adjusted up based on price fluctuations, how should the VAT threshold for business households and individuals be altered?
“For example, in the case of a family with two parents, both are salaried workers, and two minor children, the total family circumstance-based deduction will be roughly VND 370 million/year. Given the fact that business households in Vietnam are usually composed of family members, maybe four or more people, together running a micro business, so, to ensure equality among taxpayers, the VAT threshold applicable to these entities should be VND 400 million/year as they are ineligible for family circumstance-based deduction,” lawyer Tran Xoa, Director of Minh Dang Quang Law Firm, analyzed.
“Compared to enterprises that are entitled to many incentives such as enjoying tax exemption, tax reduction and low tax rates, having to pay tax only after making a profit, being allowed to carry forward losses, business households earning turnover surpassing the tax threshold have to pay tax on the whole amount of revenues, regardless of whether they have experienced a profit or loss, while the current tax threshold is too low. That is unjustified for them,” lawyer Xoa further said.
Sharing her opinions with the Tuoi Tre, tax expert Nguyen Thi Cuc, President of the Vietnam Tax Consultants’ Association, said like PIT, the VAT threshold applicable to business households and individuals should be determined in adherence to the principle of “not imposing tax from the first dong”.
“Tax policy should motivate people to expand production and business rather than making them think of tax payment as a burden,” she suggested.- (VLLF)
