VN should do more to remodel tax code

The World Bank recently issued its report – Doing Business 2010, ranking the business climate in 183 economies worldwide. Viet Nam's taxation is evaluated by the report as one of its weakest areas, thus the country dropped seven positions from the previous year. Remodelling tax codes is one of the keys to a better business climate to create favourable conditions for both local and foreign firms to operate and develop. Viet Nam News' reporter Phuong Hoa talked to Richard Buchanan, senior manager on tax services of Deloitte Viet Nam.

What should Viet Nam do to overhaul its tax code?

Establishing Viet Nam as a regional centre for Southeast Asia by adopting taxation incentives similar to those offered by Thailand and Singapore would attract multi-national regional headquarters to Ha Noi and HCM City;

Because of the impact of the global financial crisis and the impact on foreign direct investment into Viet Nam, there appears a need to widen the tax incentives aimed at attracting new investment to Viet Nam rather than elsewhere;

Viet Nam appears to need foreign expatriates to be based in the medium term to assist in imparting foreign technology and know-how which will assist Viet Nam in achieving its economic development potential. The move to tax expatriates on their worldwide incomes means that such expatriates are less likely to stay in, or come to Viet Nam;

Vietnamese businesses are expanding and need capital for further development. The tax laws should encourage reorganisation within corporate groups to facilitate listing on the Vietnamese or Singapore / Hong Kong stock exchanges on a tax preferential basis; and

With the significant tax reforms in Viet Nam over the past 15 months and Viet Nam's taxpayer self assessment system, there is a need for taxpayers to be able to ask the Vietnamese tax authorities questions about the correct interpretation of these new laws under a formal process with a user friendly outcome.

Will there be changes in the taxation systems in Viet Nam this year to carry out WTO commitments?

No substantial tax reforms are expected in the short term. Some tax policy implementation procedures will likely be seen in 2010 for personal income tax and other prior reforms.

Could you outline an overview of taxation issues last year when the Government implemented the stimulus package and offered enterprises tax preferential policies?

The Vietnamese Government's stimulus package includes the following:

Corporate income tax reduction for small corporations was cut from 25 per cent to 17.5 per cent, a 30 per cent reduction, and a deferral of tax payment times to ease cash flow was granted;

An individual's earnings were exempt from personal taxation for the first six months of 2009;

The intention to tax resident individuals on their worldwide incomes was largely deferred by one year to commence on 1 January 2010; and

Output VAT was reduced from 10 per cent to 5 per cent for certain industries with the tourism industry being a major beneficiary. This reduction was abolished from 1 January 2010.

Tax reports have started to be submitted using software systems. Can you point out the advantages and disadvantages of this?

If tax returns and other official documents can be submitted via an electronic basis, then this will be a real benefit for those taxpayers who have the systems and technology to accommodate this. It should also make processing easier. The Vietnamese tax authorities may need to speed up this process and make its systems more user friendly and flexible to accommodate frequent tax changes.

The Government may wish to consider a short-term tax incentive to encourage taxpayers to upgrade their accounting and tax software systems and connectivity with Government offices, including the taxation authorities.

This year, the Government will prioritise rural and farming areas, enterprises in the business sector will not be able to enjoy preferential policies like last year. What advice can you give businesses to map out appropriate financial plans and cut costs?

Electronic filing will ease compliance costs. The Prime Minister's Project 30 proposals to reduce compliance costs by at least 30 per cent demonstrates the Governments commitment in this area.

The Government may also wish to consider the issues raised from the question above.

Some claim that Viet Nam's tax code is still out of date, and not compatible with international standards. What do you think about this?

Viet Nam seems to be adopting tax policies similar to developed countries. As a developing country, with great potential, Viet Nam may need policies that attract foreign investment as well as stimulating existing local businesses. From a tax perspective, many countries in this region focus on being very tax competitive with a view to attracting investment and stimulating business growth. — VNS