VCCI says that the potential cancellation of tax audit and refund of personal income tax could create a legal loophole avoidance of tax.
Those comments come as a result of a Ministry of Finance proposal submitted to the National Assembly on August 17. It contains various amendments to the tax laws, including the Laws on Value Added Tax, Corporate Income Tax, Personal Income Tax, Special Consumption Tax and Natural Resource Tax.
The reasoning behind the changes is that tax authorities are overloaded when liquidating dossiers for personal income tax settlements. Therefore, the draft proposes two options. The first option is to cancel of the tax audit or refund of personal income tax. The second option is to define the threshold for tax refund or there is no need of tax audit for an additional payment of VND300,000 (US$13.17) or less.
According to VCCI, if option 1 is applied, it can greatly reduce the costs of completing tax audit procedures for both the people and the tax authorities but may affect the calculation of the progressive taxation and can cause the legal avoidance of taxes.
Progressive taxation is to help redistribute wealth in society. If the tax audit is skipped, it will benefit individuals who earn very high incomes.
Moreover, the elimination of tax audit may have the potential to cause tax evasion by businesses. For example, in order to reduce the amount of payable tax, an enterprise can be split into several enterprises that sign many labor contracts on the same laborers. This would greatly reduce the payable tax of high-income individuals and would not reflect the nature of the tax.
If option 2 is applied, depending on the specific threshold value, it will reduce the number of individuals with average income who have to make tax audit. Therefore, it will not lose the redistribution of social incomes for individuals with very high or very low incomes.
Therefore, VCCI suggested the drafting agency consider option 2 as in the draft report.