Personal income tax (PIT) plays an important role in the economy – society and tax system of Vietnam. The payment of personal income tax contributes to the development of the state budget and social welfare. If you do not have a clear understanding of personal income tax, follow this article by LSX legal firm. We would like to give you an insight into: “Why pay personal income tax in Vietnam?”
Legal ground
- Law on Personal Income Tax 2007
What is personal income tax (PIT)?
Personal income tax means an amount that an income earner must pay from his/her salary, or from other sources of revenue, into the state budget after the deduction. Personal income tax does not levy on low-income individuals. So, this revenue will be fair to all groups in society, contributing to reducing the gap between social classes.
Who must pay personal income tax?
According to Article 2 of the Law on Personal Income Tax 2007 (amended and supplemented 2012):
“1. Personal income taxpayers include residents who earn taxable incomes specified in Article 3 of this Law inside and outside the Vietnamese territory and non-residents who earn taxable incomes specified in Article 3 of this Law inside the Vietnamese territory.
2. Resident means a person who satisfies one of the following conditions:
a/ Present in Vietnam for 183 days or more in a calendar year or 12 consecutive months counting from the first date of their presence in Vietnam;
b/ Having a place of habitual residence in Vietnam, which is a registered place of permanent residence or a rented house for dwelling in Vietnam under a term rent contract.
3. Non-resident means a person who does not satisfy any of the conditions specified in Clause 2 of this Article.”
Thus, subjects to pay personal income tax: Residents and non-residents in Vietnam have taxable income.
In particular:
- Firstly, for resident individuals: Taxable income means the amount arising inside and outside the territory of Vietnam (regardless of where the income paid);
- Secondly, for non-resident individuals: Taxable income means income generated in Vietnam (regardless of where the income paid and received).
Features of personal income tax
Firstly, personal income tax belongs to direct taxes. The state will directly collect a part of the taxpayer’s income and put it into the budget. Therefore, taxpayers cannot transfer their taxes to others.
Secondly, the taxation of personal income tax (PIT) is usually applied according to the principle of the partial progressive tax rate; that means, applying gradually increasing tax rates to groups of taxable objects or to the whole taxable object. This means that the higher the income, the higher the tax rate.
Thirdly, personal income tax (PIT) is always associated with social policies. The payment of taxes means to serve the state budget, and contribute to social security policies as well as for public purposes.
The role of personal income tax
Increase revenue for the State budget
Tax is the main source of state budget revenue, including personal income tax. As the economy grows, personal income tax also has a rapid increase, proportional to the per capita income.
The payment of personal income tax helps the State to have more revenue so that it can ensure the implementation of welfare regimes as prescribed as well as invest in the construction of public works (electricity, roads, schools, stations, etc.) to serve the basic needs of people’s lives.
Regulating income to reduce the gap between rich and poor
Persons subject to PIT have a personal income higher than the starting rate of taxable income, having an income that can support themselves and their families. PIT does not target low-income individuals who barely support themselves and their families.
Therefore, the payment of personal income tax balances the rich and poor levels between classes and helps to limit the discrimination between the rich and the poor.
To grow the country’s economy
When increasing the economic development, the human resources to work will also increase and make the competitiveness of the region fair. Society considers personal income tax as a tool to help regulate the macroeconomy, and stimulate savings and investment in the direction of improving social efficiency. By reducing the income of high-income people, and redistributing it to lower-income people, personal income tax makes an important contribution to increasing social welfare regimes.
Make sure the personal source of income is legal
Many individuals’ incomes come from illegal sources such as bribery, embezzlement, trading in banned national goods, tax evasion, fraud to appropriate property, etc. When carrying out procedures for paying personal income tax, taxpayers need to declare income. From here the State can control the sources of income of individuals.
Overcoming limitations of other taxes
Personal income tax helps to overcome limitations of value-added taxes, and consumption taxes… Specifically, these taxes will affect the poor more directly because when consuming the same amount of goods, everyone has to pay the same tax. So, personal income tax calculated according to the partial progressive method will contribute to ensuring the fairness of the tax system.
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Related articles
- Instructions for declaring personal income tax for foreigners in Vietnam
- Who does not have to pay personal income tax in Vietnam?
- Who must pay personal income tax in Vietnam 2022?
Related questions
For non-residents, the tax period counted upon each time of income generation is applicable to all their taxable incomes.
Because those taxes have different subjects to pay taxes, different tax collection purposes.
Taxpayers who face difficulties caused by natural disasters, fires, accidents or severe diseases and affecting their tax payment ability may be considered for tax reduction corresponding to the extent of damage they suffer from but not exceeding payable tax amounts.
Contact LSX
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