Completion of state management of personal income tax in vietnam

The urgency of the thesis Implementing tax reform in Vietnam, personal income tax law become effective since January 1st 2009, replacing Income tax Ordinance for high-income earners is

PREAMBLE

1 The urgency of the thesis

Implementing tax reform in Vietnam, personal income tax law become

effective since January 1st 2009, replacing Income tax Ordinance for

high-income earners is a step forward in policy formation; however, through the

process of implementation, the personal income tax law has revealed some

inadequacies Although the amending and supplementing some law articles of

the personal income tax law (effective since July 1st 2013) surmounted many

defects; however, in the process that the entire humanity resolves global

problems together, the Government of Vietnam still has to put great efforts into

reforming and modernizing in order to fulfill the tax system in the process of

global integration

Before the practical demand of a synchronous tax management policy and

mechanism which catches up with the economic and social development, the

research of the process of state management of personal income tax has become

an urgent need This is the reason why the author has chosen “Completion of

state management of personal income tax in Vietnam” as the doctoral thesis in

Political economics

2 The purpose and research content of the thesis

2.1 Purpose of the research thesis

- Systematizing and supplementing theoretical issues and practical

experience in state management of personal income tax in other countries and

in Vietnam currently;

- Evaluating the reality of state management of personal income tax in

Vietnam;

- Proposing opinions, orientations and basic solutions to complete state

management of personal income tax in Vietnam

2.2 The content of the thesis

- Clarifying the theoretical content of the state role in the formation of

personal income tax role policy and in the fulfilling of the state role of personal

income tax in Vietnam The research focuses on the impacts on taxpayers’

voluntary compliance

- Analyzing the state’s practical role in the formation and completion of the

personal income tax collection’s management policy and mechanism in Vietnam

recently; pointing out the achievements, limitations and causes of the problem

- Offering an orientation and some solutions to strengthen the state role in

the personal income tax management in Vienam, paying attention to the changing

of tax management thinking purely “administrative orders” to “serve the public

administration”, respecting andhonoring the true value of the economic – political –

social contributions of taxpayers

3 The objects and scope of the research

- The research objects: State management of personal income tax being

done through legislation, policy, administrative system, administrative methods, sense of law observance of taxpayers…

- The research scope

Theoretically: The theoretical issues related to personal income tax and

state management of personal income tax in Vietnam and other countries

Practically:

o Practical experience in other countries

o The reality of state management of personal income tax in Vietnam

About time: Secondary data collected from 2009 to date; primary date

collected in 2012; the Survey of the personal income tax management policy and mechanism system in Vietnam during the implementation of the Income tax Ordinance for high-income earners, focusing on analyzing the execution time of the personal income tax law (2009) of tax authorities and taxpayers

4 The research methododology

This thesis uses synchronously traditional analytical methods, research tools such as dialectical materialism and historical materialism methods, analytic and synthetic method, statistic and comparative method; consulting documents and reports of related management agencies; consulting published reports, researches, magazines and using investigation documents, surveys, collecting statistic and analytic data… of published thesis, projects, researches; Interview managers, experts, scientists to learn about some impacts of the factors to taxpayers’ voluntary compliance Collected survey forms, after being revised and disposed of unsuitable ones, are result-treated with the specialized computer software SPSS

5 Contributions of the thesis

Discoveries of the research: The research has displayed advances and

restrictions of the policy, as well as the existence of personal income tax management mechanism in Vietnam

Differences of the research: The research has updated achievements

and has showed limitations of state management of personal income tax in Vietnam; meanwhile, proposing the routine of reforming the tax policy with the gradual reduction of tax rate in the next 2 periods of tax policy reform in 2017 and 2022, using mathematical cacultaion that evaluates how the reform impacts taxpayers’ budget duty

Strong points and new contributions of the research: The research

has systematized experience of other countries, has displayed the existence of management policy and mechanism in Vietnam, including research of international organizations which are assisting Vietnam in the tax system reforms such as WB, IMF, OECD, EU, JICA

6 Structure of the thesis

Besides the preamble, conclusion, preference and appendix, the main content of the thesis has been structured in 4 chapters:

Chapter 1: Overview of the research situation related to the thesis

Chapter 2: Theoretical and practical foundation of state management of

personal income tax

Chapter 3: Reality of state management of personal income tax in

Vietnam

Chapter 4: Solutions to upgrade state management of personal income tax

in Vietnam

CHAPTER 1 OVERVIEW OF THE THEORY RELATED TO THE THESIS 1.1 Overview of the situation of tax and personal income tax research

1.1.1 Research relating income tax in some countries

During the research process, the author has consulted other studies like:

“An Inquiry into the Nature and Causes of the Wealth of Nations” (Adam Smith

- 1776); “Economics” (Paul A.Samuelson and William D.Naudhaus – 1997);

“Initiation of tax law fundamentals and tax theory” (translated by Vietnamese

Research Center – 1963); etc

So, we see that the issues of personal income tax have attracted the concern and research of many modern international scientists

1.1.2 The elaborate works about personal income tax in Vietnam

Laid the foundation for the economic theory in general and tax theory in

particular, shown in the works: “Tax curriculum” (General Department of Taxation – 1991); “Tax and tax system curriculum in Vietnam” (Prof Dr Bui

Xuan Luu, Dr Nguyen Huu Khai, master Nguyen Xuan Nu, Vietnam

Education Publishing House – 2003); “Tax management system” (Dr.Nguyen Thi Bat, Dr.Vu Duy Hao – 2002); “State management in economics curriculum” (Dr.Mai Van Buu, Dr.Doan Thi Thu Ha – 1999); “State management in economics” (Dr.Mai Van Buu, Dr.Phan Kim Chien – 2001)

Several works, topics, studies about the formation and completion of policy system and management mechanism of personal income tax collecting

such as: “Model of income tax application in Vietnam” (topic, 1994), “Property tax model in Vietnam” (topic, 1995); “Investigation on income, savings and investments of residents” (topic, 1998); “Completion of personal income tax in the new situation” (topic, 2000); “Personal income tax in the world and application of orientation in Vietnam” (2002); “Solutions for tax management’s completion in Vietnam in current situation” (monographic book, 2003);

“Personal income tax reform in Vietnam” (2005); “Personal income tax law formation project” (2007); “Tax management innovation in conditions of economic integration in Vietnam” (Le Duy Thanh, PhD thesis, 2007);

“Completion of personal income tax policy in Vietnam in accordance with the process of international economic integration” (Nguyen Xuan Son – 2007);

“Personal income tax management in Vietnam in conditions of international economic integration” (Ly Phuong Duyen – 2009); “Tax management in Vietnam in conditions of international economic integration” (Nguyen Thi

Thuy Duong – 2011), etc

Moreover, there’re a lot of studies belonged to international personal income tax partners with Vietnam Those studies refer to the key issues such as: 1) The current situation of tax policy, tax management and the accordant

solutions with the process of Vietnamese’s economic integration; 2) State

management of administrative reform and tax reform; 3) Research on the

implementation and recommendations of amendment personal income tax law

Conspicuously, the personal income tax issue has been the concern of

many scholars, scientists, academics and media However, there has not been

any study on both two aspects of state management: management policy and

mechanism to analyze deeply, to point out the existence, and then to propose

solutions of completing the state management to personal income tax From the

evaluation, the author has discovered a gap that must be filled

1.2 The results and issues that must be continued to research

Through the works above, it is clear that the scholars have concluded

many academic issues on taxation, focusing on research of state management,

on administrative reform added tax reform, on the implementation and

recommendations of amended personal income tax law During the process of

reform and complete Vietnamese tax system, the works of international partners

like WB, IMF, EU, OECD, JICA play an extremely important role

The work in Vietnam and other countries have analyzed the aspects of

state management in an adequate and profound way, either about policy or

about collecting management mechanism immediately since personal income

tax has been regulated by Income tax Ordinance for high-income earners,

corporate income tax and land use right transfer tax

Implementing personal income tax law, the renovation process, the

administrative reform or the law enforcement, amendment, researchers, along

with the media have published numerous articles and contributed to the process

of completing state management of personal income tax in Vietnam In spite of

many advances, personal income tax collecting management policy and

mechanism still have some limitations Vietnamese personal income tax law

still exist too many types, the collecting system’s functions are not effective

yet; the evaluation of international partners of tax system’s corruption is very

weak… Those factors have posed to policy makers, managers an urgency of a

new reform for the tax service in order to complete the state management of

personal income tax in Vietnam

Despite many work related to the state management of personal income

tax, until now there has not been any work that had the systematic character of

state management of personal income tax from theory to practice, then to

propose ideas, orientation and solutions Therefore, the chosen topic does not

coincide with the published study results

CHAPTER 2 THEORETICAL FOUNDATION AND PRACTICAL EXPERIENCE OF STATE MANAGEMENT OF PERSONAL INCOME TAX

2.1 Basic understanding of personal income tax and the state management of personal income tax

2.1.1 Basic understanding of personal income tax

2.1.1.1 Some concepts of personal income tax:

a) Income tax concept: Income tax is a type of tax that affects directly on the real income of taxpayers such as person or legal entity The main characteristic

of this type is the unity between the taxpayer and the taxbearer, the taxpayer himself is also the one that really bears this tax

b) Personal income tax concept: “Personal income tax is the type of tax that hits on the net income of individuals in a given tax period (usually a year) regardless of the income’s generation source.”1

2.1.1.2 Characteristics of personal income tax Personal income tax is a type of tax in the tax system, in addition to general characteristics, personal income tax has its own traits: it’s the type of tax that only affects on people with income high enough to be taxed; it has a progressive nature (the higher one’s income is, the more tax he has to pay); it doesn’t distort the price of goods and services

2.1.1.3 The role of personal income tax

- Personal income tax is an important source of the state revenue

- Personal income tax manages and regulates macroeconomics through enhancing or reducing income regulation of different social classes, affects the aggregate demand, so that diminishes or stimulates the economy

- Reasonable personal income tax policy encourages workers to increase

their income through the appropriate commendation and reward policy, encourages the rich men’s contributions to build the country; and acts as a tool for the state to control and collect the population’s income

2.1.1.4 Basic content of personal income tax:

a) Taxpayers: According to the personal income tax law, taxpayers are defined

as people or legal entities that areresponsible for paying personal income tax to the State

b) Taxbearers: In the tax law, they are the objects given to be taxed

c) Taxable base, tax base or taxable grounds: The grounds used for determining the amount of tax payable of one tax type that a taxpayer must hand over are called tax base or taxable grounds of that tax type Usually the tax base of a tax type consists of these factors: Taxable object and taxable price

1

d) Tax rate: Tax rate is the main part of a tax type, since it expresses the need

to focus on financial resources for the state budget and the socio-economic

adjustment policy It’s also the top concern of taxpayers Depending on each tax

type’s regulations, different types of tax rate are applied accordingly

e) Tax exemption, tax reduction: Tax exemption, tax reduction is an exceptive

factor specified in the tax law The regulation that allows taxpayers not to fulfil

the duty of paying the entire amount of tax, not to pay taxes to the state, is

called “tax exemption”; or to pay just a part of it, is called “tax reduction”

f) Tax declaration, tax payment, tax collection mode: The tax declaration

mode presents the rights and obligations of taxpayers in the observance of

accounting records, receipts and in the supply of documents, accounting records

and bills related to the calculation and collection of tax The tax payment mode

includes the rights and obligations of taxpayers with the state competent

agency The tax collection mode is the activity of the state competent agency

Additionally, the tax law also defines responsibilities and jurisdiction of state

administrative agencies at all levels, state agencies involved in the process of

tax collection; or responsibilities and jurisdiction of mandatory organizations

and individuals that collect the tax

g) Violation and remuneration handling mode: In order to guarantee that the

tax law is fulfilled thoroughly, focusing properly, fully and promptly tax

revenues to the state budget, the tax law applies punitive sanctions of the state

for person or legal entity that violates the law, remuneratory sanctions for those

who fulfill the tax collection duty

2.1.2 State management of personal income tax

2.1.2.1 The concept of state management of personal income tax

a) State management of tax:

- Tax management is the work of state administrative agencies in the tax field

done through the formation of tax policy and the management of tax collection;

through applying tax management strategy of each period; organizing the

enforcement of tax law, operating, affecting and monitoring to ensure that

taxpayers fulfill their duty of paying tax for the state budget in accordance with

the law regulations

- The state management of tax is the impact process with purpose and

awareness of the state whose representative is the tax agency that organize,

manage activities, mobilize the tax revenues to the state budget, carry out the

targets proposed in each period; help people to execute law regulations of tax,

fees, charges and other payments (referred to as tax) to the state budget;

coordinate with organizations, individuals in the society to execute tax law

regulations

b) State management of personal income tax:

State management of personal income tax is the impact process aiming at

raising awareness of the state on the mobilization of tax revenues to the state

budget by way of legal documents, methods and organizations, competent agencies to achieve socio-economic goals There are three levels of state management of personal income tax: For tax officials; for a tax agency, and for the state management system

2.1.2.2 State management principles of personal income tax Despite being carried out by public authorities, tax management can’t be applied arbitrarily nor causes annoyance to taxpayers It must follow state management principles and frameworks to ensure the process of tax collection: 1) Law compliance principle; 2) Unity, democratic centralism in tax management principle; 3) Justice principle; 4) Transparency principle; 5) Convenient, economical and effective tax management principle

2.2 The need to fulfilling, content and factors influencing on state management of personal income tax

2.2.1 The need to fulfilling state management of personal income tax

In the past few years, the globalization tendency promoted the integration and development process of all economies in the world Accordingly, tax system with the policy framework, the collection mechanism have been reformed in a positive way with the general trend, improved gradually, in accordance with international criteria, performed the role of a state tool and regulated the state’s macroeconomics effectively In this context, fulfilling state management of personal income tax becomes an urgent need, for the following principal reasons:

- Completing state management of personal income tax to promote the positive role of tax to achieve the objective of social justice;

- Completing state management of personal income tax to elevate the public awareness of citizens

- Completing state management of personal income tax to add more

revenues to the state budget, to meet the demand for social spending

2.2.2 The content of state management of personal income tax

2.2.2.1 Enacting the legal framework of personal income tax law and policy

In order to complete the personal income tax law and policy, to achieve the success in encouraging people to comply with tax law, in addition to researching, learning from the experience of countries that have succeeded in reforming the tax system, we also need to continue researching to expand the tax base and to clarify the taxable income; amend and supplement tax calculation method for each income in a simple way, consistent with the general practice, elevate taxpayers’ compliance, creat an environment favorable for the tax collection; adjust the tax rate reasonable to encourage individuals to enrich legitimately

2.2.2.2 Completing the state management organization and staff of personal

income tax

Consisting of the following contents: Completing the tax management

organization; building the tax officials team; determining the appropriate tax

management organizational structure

2.2.2.3 Tax collection management organization: propagandize, guide the

process, operational methods, technology support

The top priority task in the tax collection management organization is

creating and executing basic processes and regulations in tax management

including: tax registration, tax declaration, tax calculation, tax collection, debts

control, tax refund, tax inspection and audit and handle tax law violations of

taxpayers

2.2.2.4 Personal income taxpayers inspection and audit

Taxpayers inspection is inspecting the observance of tax law of taxpayers

or inspecting the observance of the duty that the state requires in other words

The content of taxpayers inspection focuses on these basic issues: 1) Inspecting

the observance of tax registration and tax declaration regulation; 2) Inspecting

the observance of data, business documents storage mode of taxpayers; 3)

Inspecting the observance of tax payment of taxpayers

2.2.3 Factors impacting the state management of personal income tax

There are many factors that impact the state management of personal

income tax, including both positive and negative ones These factors are steps

to complete the personal income tax management Specifically: 1) The state

policy and the strictness of the law; 2) The effectiveness of the tax

administration system; 3) Qualifications and moral qualities of the tax officials

team; 4) Facilities of the tax sector; 5) The primary method of payment in the

population; 6) The income status, living standards and educational level of the

people

2.3 Experience of state management of personal income tax in some

countries and the lesson for Vietnam

2.3.1 Overview of experience in state management of personal income tax of

some countries

Personal income tax is the common tax worldwide and bears a history of

hundreds of years Until now, there are over 180 countries that apply personal

income tax Most countries nowadays (Japan, Indonesia, Malaysia,

Thailand,…) identify the taxable incomes and classify them basing on their

source of creation: Income from labor; from business; income from property for

rent, transfer of property, inheritance, presents; income from indirect

investments such as interest, dividend, income acquired through capital

contribution; other income…

About personal income tax management: Examples are Malaysia, Singapore, Thailand, Indonesia, China, South Korea, England, United States, Japan, Australia…2: For non-resident subjects, most countries apply the principle of income generation source to tax income generated in that country, except for Hong Kong where every individual resident and non-resident only has to pay income tax for the income generated in Hong Kong In Netherlands, the Tax inspection manual is issued and reprinted frequently; it has become an effective tool for the tax agencies to perform their tasks In Australia, tax collection system operates under the mode of self-declaration and self-payment from which taxpayers fulfill their duty in respect to the law The tax agencies manage system risks through the balance of resources to ensure their citizens observe the law3

Besides,some Eastern European countries have eliminated the progressive tax rate, applied a homogeneous tax rate to income from salary, wages In spite

of having simplified things, this method has been criticized due to the problem

of income redistribution

2.3.2 The lesson about personal income tax management for Vietnam

Through the synthesis and research of applying personal income tax reform in the world, Vietnam can learn these lessons to complete state management of personal income tax: 1) Building taxation model; 2) Determining taxable subjects; 3) Determining taxable personal income and nontaxable income; 4) Determining family allowances; 5) Determining tax rate and tariff; etc

According to the personal income tax management’s experience in other countries, the lessons that need to be applied to Vietnamese tax service include the following things 1) Managing organization of tax collection; 2) Upgrading the form and method of declaration; 3) Building data base and using information technology; 4) Developing human resources of tax officials

In summary, all the experience shows that personal income tax is an

important revenue of the state budget, a tax type that has a wide range of adjustment, affects directly to the economic benefits of each individual in the society Therefore, the application, execution and management of personal income tax is always a complicated topic and requires the attention of social sectors In the construction of personal income tax law in every nation, the policy makers have to consider this issue carefully

2

Report “Personal income tax reform experience of some countries in the world” (Ministry of Finance, 10/2012)

3

The 2003-04 compliance program, The Australian Taxation Office, 2003, describes risks and the way resources of

CHAPTER 3

THE CURRENT SITUATION OF STATE MANAGEMENT OF PERSONAL

INCOME TAX IN VIETNAM

3.1 Overview of state management of personal income tax in Vietnam (in

terms of specific contents)

3.1.1 The reality of legal documents of tax management and personal income

3.1.1.1 Personal income tax law

Personal income tax law no.04/2007/QH12 has become effective since

01/01/2009 The main points of Personal income tax law are:

- No discriminate Vietnamese citizens from expats living in Vietnam;

No discriminate regular income from irregular income;

- Tax more types of income: According to the law, there are many

taxable types of income like income from capital investment, including interest,

dividend, interest on capital, real estate transfer, copyright,…;

- Nontaxable income, tax exemption income, tax reduction income;

- Tax period: The tax period is the calendar year for income from

business and working For income from interest, dividend and profit, interest on

capital, real estate transfer, lottery winning, copyright, franchising, technology

transfer, inheritance and presents, the tax period is identified as each generation

of income

- Social security and health insurance: These distributions are reduced

from business income or salary, wages

- Family allowances: For taxpayers, the amount of monthly deduction is

4 million VND and each dependent is 1,6 million VND

- Charitable contributions: There is deduction applied for charitable

contributions, with accordance to the international custom

- Tax rate: the law specifies 7 rates: 5, 10, 15, 20, 25, 30 and 35%

- Tax threshold: The tax threshold of 10 million is applied for income

from copyright, franchising, prize winners, inheritance… These types of

income also have the special tax rates

- Narrow tax base: This requires immediate acceptance for the benefit of

the formalization of the labor market and the economy

- Non-resident individuals: the tax rates are applied variously to each

business sector, the 20% tax rate for income from salary, wages; the 1%, 2%,

5% tax rate for business income

New points compared to the Ordinance

Compared to the Ordinance, the personal income tax law has many new

points, progressive, consistent points with the international custom:

1) About taxpayers: Individuals with income from business, from transfer

of land use rights, from salary, wages and other sources of income Besides, the

law added other taxable subjects which are individuals with income from

capital investment, capital transfer, property transfer, income from inheritance, presents;

2) Taxable types of income are expanded corresponding to these terms: income from capital investment; income from capital transfer, real estate transfer including house ownership transfer and land use rights transfer; land and surface water lease rights transfer; income from inheritance, presents; from winning prizes of bet, casino;

3) Changing the taxable starting point by applying family allowances to taxpayers (4 million/month – 48 million/year) and dependent (1,6 million/month), expanding application for individual with business income; 4) Charitable, humanity, study promotion contributions; contributions to organizations, centers that care and foster children with especially difficult circumstances, disabled, homeless elderly, social security, professional liability insurance contributions for some industries that require compulsory insurance are considered tobe non-taxable income;

Unity of tax duty between Vietnamese and foreigners

The Law Amending and Supplementing a Number of Articles of Personal Income tax law 2012

Those are the amended and supplemented articles:

- Changing the time of taxable period’s registration for individuals with income from stock transfer to register the taxable period at any time during the year Removing the phrase “for all types of income” in the responsibility of personal income tax declaration, payment, settlement of individuals to conform

to related regulations in case of changes arise later

- Increasing family allowances for taxpayers from 4 million/month (48 million/year) to 9 million/month (108 million/year); increasing deduction with each dependent from 1,6 million/month to 3,6 million/month to guarantee justice, encourage, attract experts, good workers; creat advantages for taxpayers, contribute to promoting administrative reform, tax management modernization; share difficulties, support earners, stimulate consumer demand, support business and production

- Regulations on allowances, subsidies deducted when calculating taxable income which distinguishes clearly and appropriately with related legal documents like social security, labor law…to ensure the unity of the law system

- More general about revenues for income from real estate transfer of individuals under all forms, including newly generated cases, authorization of house, land transfer, exchange of house, land that generates income

- Supplement “pensions voluntarily paid by pension fund monthly” to

income that is reduced by personal income tax Non-taxable types of income

consist of social security, health insurance, unemployment insurance,

professional liability insurance with some industries, sectors that require

compulsory insurance, voluntary pension fund, charitable and humanity

contributions

3.1.1.2 Tax management law and law amending and supplementing of tax

management

Tax management law has become effective since 1/7/2007 Some notable

points are:

- Defining the rights of taxpayers in the process of tax calculation, tax

audit, tax inspection and tax complaints, the tax agencies is obliged to

compensate for the loss caused by the tax agencies;

- Emphasizing the supply and use of one single tax code, the first step to a

modern tax management system;

- Harmonized rules on tax payment and tax refund The penalty for

paying late is 0,05% of the unpaid taxes for each day The excess amount of tax

will be repaid in a certain time

- It’s legal to get information from other agencies but the information must be kept confidentially

After a period of execution, the amending and supplementing of tax management law has become effective since 1/7/2013 The amended contents are split into 3 groups:

The first group, simplifying administrative procedures of tax: reducing the frequency of declaration of value added tax for small and medium-size taxpayers; shortening the time of resolution of some administrative procedures The group that serves the objectives of reform – modernization and integration, in conformity with the international custom, containing 4 contents: (1) supplementing the principle of risks management in the tax management; (2) supplementing the mechanism of advance pricing agreement (APA) in the anti-transfer pricing in the foreign-invested enterprises; (3) expanding the range

of information gathering about taxpayers from foreign sources under the signed agreements and treaties in order to allow to extract data from foreign sources to serve the tax management; and (4) supplementing obligations of taxpayers in applying information technology to elevate corporate governance as well as to develop the method of electronic tax administration

The group that improves the efficiency of tax administration to conform

to the actuality and to related legal documents to prevent budget revenue loss, reduce tax arears, containing 10 contents: the order of paying taxes and fines; the extension of tax payment; supplementing the regulation of paying tax gradually for taxpayers that are incapable of paying the full amount of tax at once; erasing tax debts, tax penalties; the enforcement of tax administrative decisions; the sanctions for violations of tax law; the time limit for handling violations of tax law; the tax audit at taxpayers’ headquarters; amending contents of tax administration to synchronize with other laws; becoming effective: the law became effective on July 1st 2013

3.1.1.3 Survey on the impact of the policy change to taxpayers and comparison of tax rates between each policy change period

The state budget obligations of each taxpayer reduce in the period of policy amendment

The topic “The innovation of personal income tax policy in the actual conditions of Vietnam” has used the single model to determine the tax liability

of each individual according to different income levels from 100 million/year (8,33 million/month) to 1,8 billion and 2,4 billion/year (150 million and 200 million/year respectively), based on the number of people who depend on the taxpayer’s nurture The topic compares 6 ways: The first one considers the impact of the policy on single taxpayers; The second one considers the impact

on taxpayers with one dependent; The third, fourth, fifth, sixth way, with 2, 3,

4, 5 dependents respectively (for example wife/husband, 2 children, 2 parents)

About the contribution to the state budget from personal income tax: the

GDP grows annually, the income of workers also raise, so the personal income

tax increases in both absolute and relative numbers every year The data of the

period 2009 – 2012 are described as follows:

Chart 3.1 Personal income tax period 2009 – 2012 (Unit: Billion)

GDP

State budget revenue

PIT Total % of GDP % of state budget

revenue

2009 1.658.389 454.786 14.318 0.86 3.15

2010 1.980.914 559.170 26.288 1.33 4.70

2011 2.535.008 674.500 37.162 1.47 5.51

2012 2.949.000 41.500 49.190 1.67 6.63

(Source: The topic The innovation of personal income tax policy in the actual

conditions of Vietnam)

The figures above show that, in 2012 the total personal income tax

revenue tripled the amount in 2009 The encouragement of tax rates in 2009

was 0.86% of GDP increased to 1.67% in 2012 Meanwhile, the proportion of

personal income tax of the total state budget revenue raised gradually, from

3.15% in 2009 to 6.63% in 20124

Comparison of the average tax rate and the progressivity of personal

income tax law in 2007 with the Ordinance of 2004

To evaluate the impact of the personal income tax law of 2007 on the

amount of tax that must be paid by an individual with one dependent, researcher

calculates the tax duty of that person in 2 ways: (1) through the Ordinance of

2004 and (2) through the law of 2007, with different income levels (30 million

to 3 billion VND) The results are as follows:

4

Chart 3.2 The average tax rate for each income level according to the Ordinance of 2004 and the Law of 2007

Total income

Amount of tax payable under the Ordinance

of 2004

Amount of tax payable under the Personal income tax law of 2007

Impact

The average tax rate under the Ordinance of

2004

The average tax rate under the Personal income tax law of 2007

(Source: Tax reform in Vietnam, World Bank, 2011)

Thus, for an individual with one dependent, the personal income tax law of

2007 generates less revenue from tax than the Ordinance of 2004 in both absolute and relative terms

In other research about the tax obligations of taxpayers with 2

dependents, with the income level between 30 million and 3 billion, the taxable

income is deducted 86,4 million per year (instead of 67,2 million) and other

types of income is taxed at the homogeneous floor rate of tax of 13,33% (the

average tax rate in accordance with the personal income tax law of 2007 for

income sources such as investments, copyright or real estate transfer)

Chart 3.3 Evaluation of the progressivity of the personal income tax law

system of 2007 with the Ordinance of 2004

Total

inco

me

Salar

y

Incom

e from

busine

ss

Other incom

e sourc

es

Taxable income Tax payable

Average tax rate

Ordinan

ce 2004

Law 200

7

Ordinan

ce 2004

Law 200

7

Ordinan

ce 2004

La

w 200

7

%

14

%

1200 542 365 293 542 1.20

0 114,8

210,

18

%

1500 677 456 367 677 1.50

0 169,0

292,

19

%

2000 903 608 489 903 2.00

0 259,3

440,

22

%

3000 1.355 912 733 1.355 3.00

0 440,0

737,

25

%

(Source: Tax reform in Vietnam, World Bank, 2011)

3.1.2 The current situation of the organization of personal income tax

management

3.1.2.1 Overview of the organization of tax administration in general

The organization of state management of tax collection is established

homogeneously from central to local administrative boundaries, perform the

task of execution of tax laws in the country following the democratic centralism

principle, assisting the Minister of Finance in the state administration of

domestic revenues in the country, including: tax, fees, charges and other

revenues of the State budget (referred to as tax)

3.1.2.2 The organization of personal income tax administration

Located in the organization of state management, the organization of personal income tax administration is arranged from central (the Personal Income tax Management Department) to local (the Personal Income tax Management Department of the Department of Taxation, the Personal Income tax Management team of the Tax Offices ) and is decentralized in terms of function and mission clearly

Chart 3.4 Amount of staff and civil servants in the organization of personal income tax law administration (up to December 31 st 2010)

1 General Department of Taxation (Personal Income tax Management Department)

People 22

2 Provincial, city Department of Taxation (59 Personal Income tax Management Offices)

People 409

3 Tax Office (170 Personal Income tax Management teams) People 575

(Source: The General Department of Taxation)

3.1.3 The actual status of the organization of personal income tax collection’s management

3.1.3.1 The propaganda and support of taxpayers The propaganda and support task of taxpayers is carried out frequently, continuously under various forms: pictorial, spoken, written press, direct consultation, reply in writing, opening electronic information page The tax agencies pay careful attention to conversations with taxpayers; the initiative of organizing many “week of listening to taxpayers”, the timely resolution of arising problems are highly appreciated by the business community and the public Any new tax policy is informed and guided at the right time, etc

In 2012, directly supported at the tax agencies to 185.157 taxpayers; supported through telephone to 224.014 taxpayers; replied in writing of 21.036 documents to taxpayers; organized 6.275 training workshop for 397.254 people; organized 3.602 dialogue conferences with 115.845 participants The total amount of articles of the sector in the mass media is 12.562; the number of news related to tax on the radio and television is 215.731; hosted many press conferences; the General Department of Taxation has issued 965.326 documents, publications of propaganda to taxpayers; Departments of Taxation issued 686.972 documents, publications of propaganda to taxpayers

3.1.3.2 The process and procedures of personal income tax declaration and

payment

Chart 3.6 Opperating model of current tax management

(Source: The General Department of Taxation)

In this chart, the Opperating model of current tax management through

the general process for taxpayers with the production and business activities is

described as follows: Taxpayers register tax declaration, submit tax declaration

form, tax records at the propaganda and support section (OSS) of the tax

agencies and pay taxes at the State Treasury The propaganda and support

function are there to help taxpayers; the information processing function run by

the tax declaration and tax audit section is the action of importing information

of tax declaration, issuing tax code; this section executes the tax administration

through examining the tax declaration form, determining taxable base,

comparison of the tax declaration form, determining the taxable amount;

processing tax collection documents, determining the amount of tax paid and

the tax arrears, etc

The processes in each tax management function is described according to

the workflow, determine the responsibilities of each section of the tax agencies,

pay special attention to the application of information technology

DEBT MANAGEMENT AND TAX COERCION

TAXPAY

ERS

- Debt analysis

- Debt notices

- Apply debt collection measures

- Coercive debt

PROPAGANDA,

SUPPORT, OSS,

ADMINISTRATIVE

CLERICAL SECTION

TAX DECLARATION AND TAX AUDIT (INFORMATION PROCESSING)

TAX INSPECTION, TAX AUDIT AND PIT

SYNTHESI

TREASURY

- Propaganda tax base

- Guide tax procedures

- Provide reference to

taxpayer

Receive procedures of

tax records

Tax registrationStorage of taxpayer’s informationProcess tax declaration forms, tax documents

- Tax accounting

- Debt calculation

- Process tax refund

- Tax records of taxpayers

- Tax declaration examining

- Risks analyzing

- Choose tax records

to inspect and audit

- Create inspection and audit records

- Manage records

3.1.3.3 Managing the personal income taxpayers:

The situation of collecting and paying the personal income tax conformity

to income groups: Based on the reports of the General Department of Taxation, the situation of collecting and paying the personal income tax conformity to income groups is as follows:

Chart 3.5 The situation of collecting and paying the personal income tax conformity to income groups

Tax level Proportion of taxpayer Proportion of amount of

tax collected

(Source: The General Department of Taxation)

Depending on the data above, the subjects of level 1 occupy 73%, but the amount of tax paid is only 10,6% In the meantime, although the subjects of level 7 occupy only 0,18%, the amount of tax paid reaches 17,3% Thus, raising the level of family allowances has helped a large part of taxpayers to move to the area of non-taxable subjects, the tax management costs will reduce significantly

3.1.3.4 Tax debt management The tax arrears management’s duty is to ensure the timely collection of the tax debt to the State Budget, to minimize the newly arised tax debt, to prevent revenue loss At the end of 2012, the ratio of debt to total state revenue was about 8%, increased 27,5% compared to 2011, this is consistent with the actual situation, as the economic state is struggling with many difficulties, inventories rise, the production and business stagnate However, the scale of tax debt of 2012 was lower than that of 2008 (equivalent to 9,5%)

3.1.3.5 The application of information technology in the management of tax collection