Proposal to expand the threshold for applying the direct method on revenue
The Ministry of Finance is seeking opinions on the draft Resolution of the National Assembly on reducing personal income tax and corporate income tax for households, individual businesses and enterprises. Notably, this agency proposes to increase the revenue level chosen to apply the simplified tax calculation method (tax rate multiplied by revenue) for households and individual businesses from 3 billion VND to 10 billion VND per year.
This proposal is receiving attention from experts, the business community and business households and individuals.
From the reality of tax consulting for businesses and business households, Ms. Le Yen - Director of Hanoi Tax Consulting Co., Ltd. (Hanoitax) - believes that tax policies for business households need to be adjusted in a direction that is more suitable for the scale and actual management capacity.
According to Ms. Yen, currently, business households with revenue over 1 billion to 3 billion VND can pay taxes at a rate on revenue, while households with revenue over 3 billion VND must apply the revenue minus expense method.
However, reality shows that many households with revenues from over 3 billion to under 10 billion VND are still small in scale, with little personnel, household heads directly managing and not capable of operating accounting systems, invoices, documents, inventory and internal control like businesses.
Therefore, Ms. Yen proposed expanding the threshold for applying the direct method to revenue from the current level of over 1 billion to 3 billion VND to over 1 billion to under 10 billion VND.
According to this plan, business households in the above group are allowed to choose to pay taxes directly on revenue, apply simple accounting and declaration regimes; or voluntarily apply the revenue minus expense method if there is sufficient personnel, accounting system, invoices and documents.
The selection mechanism will help households accumulate resources, gradually improve management capacity without having to immediately switch to operating methods like businesses" - Ms. Yen assessed.
For business households with revenue from 10 billion VND or more, experts propose to mandatorily apply the revenue minus expense method, instead of the current threshold of over 3 billion VND.
According to Ms. Yen, at this scale, business households have the ability to organize a better accounting and management apparatus. The application of the revenue-to-expense method will accurately reflect business results and ensure fairness to businesses.
Households in this group will have to organize accounting work; monitor revenue, expenses, inventory; keep invoices and documents; manage payments, cash flow and calculate taxes on actual income.
However, experts believe that there needs to be a separate accounting regime, simpler than businesses, and at the same time have a transition period, software support, training and consulting before mandatory application.
Tax rate on revenue could become a major burden
Another issue that Ms. Yen proposed to review is the direct tax rate for each industry.
According to Ms. Yen, the total rate of value-added tax (VAT) and personal income tax (PIT) is currently commonly at 1.5% for distribution and supply of goods; 4.5% for production, transportation, services associated with goods and food; 7% for services and non-contracting construction of raw materials.
The above ratios are calculated directly on revenue, so they do not fully reflect the cost of goods sold, salary, rent as well as the actual profit margin.
For example, a restaurant with a revenue of 3 billion VND must pay 90 million VND of VAT and 30 million VND of PIT, totaling 120 million VND per year. If expenses equal 85% of revenue, pre-tax profit is only 450 million VND. At that time, the tax payable is equivalent to 26.7% of profit, not including other compliance expenses.
This burden is even greater for service business households. With the same revenue of 3 billion VND, households must pay 150 million VND of VAT and 40 million VND of PIT, totaling 190 million VND per year. If pre-tax profit is at 450 million VND, the tax amount is equivalent to 42.2% of profit.
According to Ms. Yen, this shows that the ratio of 4.5% or 7% on revenue is not high, but when converted to actual profit, it can create a large burden.
Therefore, experts recommend reviewing and reducing the tax rate according to the actual profit rate of each industry. The specific level needs to be determined based on a survey of profit rates and a budget impact assessment of each industry.
