Death by Taxes

They say nothing is certain but death and taxes.

In Vietnam the death part still holds, but taxes (of the personal income variety) have long remained a foreign concept to most of the population.

No longer! Vietnam has joined the WTO and the global economy and NOW is getting serious about collecting personal income taxes which until recently were only paid by foreigners and a few high income earners.

Starting January 1, 2009 Vietnam plans to issue local tax codes to millions and get serious about collecting PIT.

Income tax proviso irks citizens

Under the Personal Income Tax Law to take effect next January, taxpayers would be allowed deductions of VND1.6 million (US$100) for each dependent. The taxable income threshold is VND4 million ($238) monthly for both locals and foreigners working in Vietnam.

The definition of dependent includes children under 18 years of age, disabled children of all ages, unemployed spouses, and retired and unemployed parents.

But readers said there is a contradiction between the stipulated deduction of VND1.6 million for each dependent and the dependent’s monthly income limit of VND500,000: namely, the deduction figure is much higher than the limit to what a dependent can earn.

A tax official who wished to remain unnamed said the VND500,000 income limit for a dependent is too low, which could prompt taxpayers to avoid listing the incomes of their dependents.

At the same time as introducing PIT on salary income, the government will try to apply these new taxes to stocks and real estate income as well. (Although there may be more losses than gains in these markets right now... Tax credits for loss selling anyone?)

The Government hopes of course the new policy will help shore up its finances. But some believe the authorities may have bitten off more than they can chew and think these new policies may be overreaching a bit.

Some might also question the wisdom in launching all these new taxes as we enter a global recession and businesses everywhere look at downsizing.

Capital gains tax on stocks may be straw that breaks camel’s back

SSC proposes to delay securities income tax

Expats are also up in arms about the new taxes and some are voting with their feet. Already there are anecdotal reports for expats relocating to Hong Kong, Singapore or Bangkok in the face of a slowing economy, high tax burdens and other issues.

PWC has a guide here: New law on personal income tax

KPMG offers a brief publication on the new rules here:

Tax Alert – New PIT Decree – 8 September 2008

The effective date of 1 January
2009 for the new Personal
Income Tax (PIT) regime and the
Unemployment Insurance regime
is upon us:

• All taxpayers will need to obtain
individual tax codes (the tax
authorities estimate 15 million
tax codes will be required across
Vietnam with 12 million still to be
issued).

• Millions of private household
businesses will change to
paying PIT rather than the
comparatively simple, deemed
corporate income tax as they do
at present.

• Unified tax rates apply to both
Vietnamese and foreign resident
tax payers with the top marginal
rate reduced from 40 percent
to 35 percent. However, the
zero percent tax rate band will
be abolished and replaced by
personal and family member
dependent allowances.

• Business income and
employment income (if
relevant) will be combined for
the application of the same
progressive tax rates.

• Many income items previously
not taxable will become
taxable under the new law i.e.
investment income, capital gains
on securities/investment, capital
gains on real estate properties,
gifts and inheritances.

• Many resident expatriates
(or their employers) may be
seriously impacted when a
number of the current nontaxable
income items potentially
become fully taxable (e.g.
company provided housing,
children’s school fees, overseas
home trip airfares). Additionally,
typical non-Vietnam related
income items currently not
taxable (e.g. home country
property rental income, or
offshore non-employment
income items) may be subject to
Vietnam PIT.

Bottom line this WILL impact your bottom line if you live and work (or invest) in Vietnam.

Beware and Be Afraid.

This is sure to make a bad economic situation even worse...