Business households have been offset Family Circumstance Deduction when calculating Personal Income Tax

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Business individuals and households with an annual income of VND 100 million or less are not subject to Personal Income Tax. Photo: Thuy Linh.

There is no need to apply family circumstance deduction for business households

Recently, the Ministry of Finance drafted a resolution of the Standing Committee of the National Assembly on adjusting Family Circumstance Deduction level for personal income taxpayers. Regarding this issue, some people said in parallel with the increase in Family Circumstance Deduction level for personal income taxpayers, the management agency should consider adjusting the taxable threshold for business households. Law No.71/2014/QH13 amending and supplementing articles of the Law on Personal Income Tax stipulates that business households and individuals with an annual income of more than VND 100 million/year shall pay personal income tax according to the fixation rate on the income of each business line, production and business sector; business households and individuals with an annual income of VND 100 million or less are not required to pay Personal Income Tax.

For this fixed rate, Ta Thi Phuong Lan, the General Tax Department's Deputy Director of Tax management for households and small- and medium-sized enterprises, said the development of the Personal Income Tax rate for business households must ensure two principles: Business households can apply the same rate as micro businesses; to be deducted family circumstance in the form of the personal income tax rate lower than the corporate income tax rate.

According to provisions of Law No. 71/2014/QH13, to meet the simple and effective requirements in tax policy and management for business households, in addition to applying a Value Added Tax rate similar to that of enterprises. The Personal Income Tax rate for business households is applied the tax schedule of Personal Income Tax rate with the tax rate of three business sector groups 0.5% of trade sector, 2% of production, transportation, 5% of service without Family Circumstance Deduction.

“For the trade sector, the Corporate income tax rate applicable to micro businesses is 1% of total revenue. If the normal corporate income tax rate for business is 20%, the total cost is 95%. Or it can be understood, the regulated corporate income tax for micro businesses is only 1%, profit after tax is 4% and total cost is 95%.

For business households in the same business line, the Personal Income Tax rate is 0.5%, it is also determined the rate of personal income tax adjustment is lower than enterprise 0.5%, the after-tax profit is 4.5% higher than the business, the total cost of the business is 95%. Similarly, for services and manufacturing sectors, the rate of personal income tax for business households is lower than that of businesses to increase profit after tax compared to enterprises, compensating family circumstance deduction for business households,” Lan said.

According to Assoc.Prof.Dr. Nguyen Dinh Luan, Ho Chi Minh City University of Technology, previously, tax calculation for business households and individuals was quite complicated because most households and business individuals did not implement the regime of accounting, invoice and document. Accordingly, the Personal Income Tax for business households and individuals is applied the same as enterprises, revenue minus costs to determine taxable income. If a business household or individual has not yet implemented the accounting regime and the taxable income cannot be determined, the tax agency shall fix the income, then re-determine the taxable income on the basis of deduction for family circumstances to apply progressive tax rate and make tax finalisation at the end of the year. Due to this fact, most business households and individuals do not follow the accounting regime, so they must be on fixed taxable income.

“This provision ensures a specific and simple policy, improves efficiency of tax collection management, tax law compliance of business households and individuals, and saves social costs. On that basis, it can be affirmed that business individuals must not reduce family circumstances,” Assoc.Prof.Dr. Nguyen Dinh Luan said.

It will be considered and adjusted appropriately

Lan said that income threshold of 100 million/year or less is to identify small-scale business households that are not subject to tax to reduce tax management workload. This threshold of income is not equivalent to Family Circumstance Deduction level. Therefore, for business households with revenue of more than VND 100 million/year, the tax calculation is calculated from the first level, and the cost and family circumstance deduction will be applied to the low tax rates as prescribed by law.

“If the National Assembly is considering revising up the family circumstance deduction level, it should also revise up the revenue threshold to determine taxable subjects for business households, which is inappropriate. To increase the revenue threshold as a basis for determining taxable subjects, it is necessary to study and assess the actual situation on a different level of the family circumstance deduction and personal income tax policies for business households. If it is appropriate, this will be considered and adjusted when amending the Law on Value Added Tax and the Law on Personal Income Tax, ” Lan said. Many experts also said that, with the current Personal Income Tax rate, the adjusting the family circumstance deduction level for labourers is quite appropriate at this time, the adjusting for business households needs to be studied carefully not only from a legal perspective but also from an economic and social perspective. Each tax rate is carefully reviewed by the Government and the Ministry of Finance under the verification and decision of the National Assembly, so it ensures fairness and transparency.