Experts believe that taxing profits is true in nature and progressive, helping business households significantly reduce tax costs.
The Ministry of Finance is proposing to impose tax on profits for all business households whose revenue exceeds the taxable threshold, instead of calculating it on all revenue as currently. Specifically, households that identify input costs and have a revenue of less than 3 billion VND a year will be subject to a tax rate of 15% on the profit, while over 3 billion VND is 17%. In case costs cannot be determined, they pay according to the current ratio of revenue, 0.5-2% depending on the industry.
Talk to VnExpress, Dr. Nguyen Ngoc Tu, former Director of the General Department of Taxation, lecturer at Hanoi University of Business and Technology, said that this approach is true in nature: “income tax must be calculated on profits, not on revenue”.
Sharing the same opinion, Mr. Nguyen Huynh Anh Tuan, Director of GSC Tax Accounting Co., Ltd., said that it is reasonable for the Ministry of Finance to divide into many tax calculation options based on the scale of revenue and the ability to determine costs of business households. This ensures the principle of correct and complete tax payment.
Compared to current regulations, according to Mr. Tuan, the new proposal helps business households significantly reduce tax costs. Especially households in industries with high sales revenue and high input costs (labor, materials, premises…) will benefit.
At the tax policy discussion this week, Ms. Nguyen Thi Cuc – President of the Vietnam Tax Consulting Association highly appreciated the proposal to calculate income tax on profits. “Business households only have to pay taxes if they make profits and do not have to pay taxes when they suffer losses. This form ensures a more transparent and fair tax policy,” she commented.
Small traders sell goods at Ben Thanh market (HCMC). Image: Quynh Tran
By the end of 2024, the country will have about 3.6 million business households and individuals. The number of households operating stably (contracted and declared) is 2.2 million. The number of households with revenue above the taxable threshold (more than 100 million VND a year) is 1.3 million, accounting for 59% of the total number of business households.
From a business perspective, many people support it but are concerned. Mr. Nguyen Van Tam, owner of a clothing stall at a market in Hanoi, said that tax based on interest “is beneficial for industries with fluctuating profit margins”. However, he mainly imports fashion goods from wholesale markets, paying in cash, with almost no invoices.
“If I ask to prove costs, I’m worried that there won’t be enough documents and that taxes will be higher than reality,” Mr. Tam said and proposed that the management agency research a simple mechanism or apply “cost coefficients by industry” to facilitate small business households.
Meanwhile, Ms. Tran My Duyen (a small trader selling seafood in Ho Chi Minh City) sees calculating tax based on interest as “more fair” because input prices such as shrimp and squid fluctuate daily. However, she takes care of recording invoices when work starts at 3-4 am. “If the regulations are too strict, it will be difficult for traditional market traders to keep up,” she said.
In fact, most business households are paying flat taxes, not paying attention to invoices. Their inventory is largely undocumented. Therefore, expert Nguyen Ngoc Tu believes that applying the new calculation method right at the beginning of next year will be “almost impossible”.
“The lack of invoices and documents will prevent business households from being able to prove reasonable and valid expenses. From there, it is difficult for them to determine the cost price, profit and loss to pay taxes,” Mr. Tu said.
Experts believe that a roadmap is needed for households to restructure their purchasing sources and gradually switch to transactions with documents.
And Mr. Nguyen Huynh Anh Tuan pointed out barriers from household business habits. Accordingly, many households, especially the elderly, doing business in the media market consider invoice management to be a cumbersome procedure. Therefore, they need time to change, access technology to comply with regulations, or incur additional costs of hiring accounting services. From the tax administration side, Mr. Tuan said that the workload also increased significantly when applying the new proposal, due to the need to compare cost documents to determine the tax calculation plan.
In addition to the calculation method, The Ministry of Finance is also researching increasing the taxable revenue threshold for business households to match reality and ensure fairness for payers. Currently, the tax threshold applicable to business households and individuals is 100 million VND a year, expected to increase to 200 million from next year. This level was criticized as inadequate, so experts and National Assembly delegates suggested that it should be adjusted to a minimum of 500 million, or even 1 billion VND.
According to Mr. Luu Duc Huy, Deputy Director of the Department of Tax Policy Supervision, Fees and Charges (Ministry of Finance), if tax calculation on profits is applied to business households, the taxable revenue threshold will no longer have too much impact. At that time, this threshold mainly played a role in determining whether small-scale households were exempt from tax.
Mr. Huy affirmed that the adjustment level will be carefully considered by this agency to avoid inequality. “If the exemption level is too high, it may cause inequality between exempted households and households that have to pay taxes. On the contrary, too much exemption will reduce budget revenue, creating inequality,” said a representative of the Ministry of Finance.
In this aspect, Dr. Nguyen Ngoc Tu also believes that raising the tax exemption threshold too high can create a “gray area”, encourage tax evasion and lose the motivation to transform into a business.
He assumes that with a threshold of 1 billion VND, 99% of business households nationwide will be exempt from tax. This can cause large-scale households to divide their revenue, avoid taxes, and reduce the motivation of households to move to businesses. Therefore, Mr. Tu proposed to temporarily apply the level of 200 million VND and consider adjusting it after 2026, when the electronic invoice system will have wider coverage.
“Policy needs to avoid sudden adjustments that disrupt the market. In addition, when the invoice system is covered by 2026, only then will there be real data to see if the 200 million threshold should be kept or adjusted,” he added.