Raising the threshold for VAT needs to be closer to reality

One of the issues that has received public attention recently is the proposed increase in VAT taxable revenue to 150 million VND/year. This regulation means that only individuals and business households with sales revenue of over 150 million VND/year have to pay VAT, an increase of 50 million VND compared to the current regulation.

Many conflicting opinions

According to the program of amending tax laws in 2024, the draft revised Law on Value Added Tax (VAT) will be submitted to the National Assembly for comments at the 7th session (taking place in May 2024) and approved at the 8th session (taking place in October 2024). To complete the draft law, the Ministry of Finance has announced and is soliciting comments on the content of this draft Tax Law with a number of proposed amendments and supplements. One of the contents that has received public attention recently is the proposed increase in VAT taxable revenue to 150 million VND/year. This regulation means that individuals and business households with sales revenue of over 150 million VND/year will have to pay VAT, an increase of 50 million VND compared to the current regulation.

On the other hand, according to experts, when the tax threshold is raised, it will motivate businesses and individuals to promote production and business activities, increasing revenue better. Mr. Nguyen Van Duoc, Head of the Advisory Board of the Vietnam Tax Consultants Association (VTCA), assessed that this is consistent with current practice. This is a good sign for business households and individuals. However, the tax threshold needs to be raised even higher to comply with the Law on Personal Income Tax and the poverty line stipulated in Decree 07/2021.

Raising the VAT taxable revenue threshold for individuals,
There are still many conflicting opinions about business households.

Meanwhile, the Vietnam Confederation of Commerce and Industry (VCCI) said that according to many businesses, the taxable revenue threshold of 150 million VND/year is still relatively low. Comparing between individual businessmen and salaried individuals will show the unreasonableness. Therefore, VCCI recommends considering amending the regulations on taxable revenue threshold of business households and individuals, possibly raising the taxable revenue to about 180 to 200 million VND/year. The Ministry of Transport even proposed the VAT threshold at 250 million VND; Trong Tin Accounting and Tax Consulting Company Limited proposed the tax-free revenue threshold from 150 million VND to 180 million VND or should regulate it openly and let the Government regulate it to ensure flexibility and close adherence to reality.

Sharing his business experience, Mr. Nguyen Xuan Sinh - a food service business in Hanoi said that he was very happy about the increase in the VAT threshold, but according to his calculations, with a revenue threshold of 150 million VND/year equivalent to 420,000 VND/day, which means that he has to pay tax for every 10 meals he sells/day. This revenue is not enough to cover the cost of buying raw materials, renting premises, staff... for the facility. Therefore, according to Mr. Sinh, the VAT threshold of 150 million VND/year is unreasonable and unfair to businesses like him.

Ensure consistency and synchronization

Regarding this issue, the Ministry of Finance explained that since the 2013 amended VAT Law, which amended and supplemented a number of articles of the 2008 VAT Law, took effect, the consumer price index (CPI) has increased significantly. Adjusting the revenue from sales of goods and services of individuals and business households to match price fluctuations is necessary. The VND 150 million level is based on the inflation index and the actual situation; does not create compliance costs, administrative procedures for taxpayers and transparency in tax management. A higher tax threshold will not encourage business households and individuals to switch to enterprises. Raising the tax reduction level higher will affect the state budget revenue at the local level, especially in localities with low revenue.

Regarding this concern, Mr. Nguyen Van Duoc said that the revenue threshold is not necessarily the reason why households consider choosing to establish a business, but they are more concerned about the institution, business environment, tax policies, and administrative procedures. The concern when converting into a business is the cost and time involved due to having to fully comply with regulations on invoices and documents, having enough accounting staff as well as reporting taxes according to regulations. Businesses must pay many types of taxes including corporate income tax, VAT, social insurance and other costs. Therefore, the authorities need to continue to review, research and reform legal regulations related to the fields of accounting and tax, creating fairness between types and sizes of businesses. Tax policies and administrative procedures must be favorable so that business households see the benefits and have the motivation to boldly convert to businesses.

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