The proposed threshold for taxable income has been set at VND4mil a month.

This rate may be a bit low for wage earners living in Hanoi and Ho Chi Minh City, but on an average nation-wide, it is considered rather high, and still will be in early 2009 when the law comes into force.

When we set this bench mark, we had already included the projected inflation rate by then.

To make sure the law is strictly enforced, all wage earners will be given tax file numbers which they will then use to calculate the tax they owe on their taxable income, and their declaration will then be checked by the tax office later.

According to the proposed law, taxable income levied on foreigners living and working in Vietnam will be higher than the existing system.

For example, under the present law on high income tax, if a foreigner who earns about US$50,000 a year (about VND800mil) has to pay $9,000 in income tax.

But under the proposed law, the same person will have to pay $11,000 in tax, which is an increase of 10%.

In reality though, most foreigners living and working in Vietnam earn less than $75,000 per year, probably even less than $50,000 a year.



For foreigners who fall into this category, annual taxable income will increase, by between $1,000-2,000 from the current amount he or she has to pay.

Another problem is that if the draft law is approved and comes into force in early 2009, companies will have to increase the salary proportion in their budget to reflect the new tax hike.

Increases in salary would be equated as an increase in production costs. As a consequence, the competitiveness of the enterprise and of the economy in general will be weakened.

This is an important point as from 2009 Vietnam will have to start to implement its international commitments and scrap all the trade barriers and protection measures it currently has in place.

I fully support the objective of the law, which is to increase revenue collected from personal income tax. But to come up with appropriate tax rates in accordance with the national economy and socio-economic development as well as the consumer price index, needs a careful and thorough examination.

Le Dac Son, Director General of the non-state VPBank

It is too early for Vietnam to have the sort of personal income tax system proposed by the Ministry of Finance.

The private sector has a high growth rate in recent years. But the sector's development is still spontaneous without the existence of strong economic groups/corporation or enterprises.

If the threshold of the income tax is at VND4mil/month by 2009, I think the proposal is not realistic or workable. By 2009, because of the increasing inflation rate, the true value of VND4mil is likely to be equal to VND2mil in terms of purchasing power.

Realising this, I propose to raise the threshold to VND7-8mil.

To make the system simple and workable, I also suggest that taxable income should not be deducted for dependants.

I also don't think it is appropriate for Vietnam to tax capital gains from savings. The country's economy is still underdeveloped. The government should encourage people to reinvest back into the economy.

At present, capital sources for the country's economy mainly come from the banking sector. This will still hold true for at least another 10 years.

So if capital gain from the savings is to be taxed, I'm afraid to say that not many people will deposit their money into the banks. Instead they will convert it into other currencies, including the US dollar, or buy gold or invest in real estate.

Nguyen Hoang Hal, Secretary General of the Viet Nam Association of Financial Investors (VAFI)

The draft law on personal income tax is still bellow the basic requirements of laws on personal income tax in comparison to international practice.

The proposed law has so far failed to define clearly who should pay the income tax. Added to this, the method to calculate the taxable income is not well grounded or workable, and the timing for the enforcement of the law is not appropriate either.

The view of the drafting committee is to impose tax on any revenue generated, but they are forgetting a very important principle that tax is a tool to be used at the macro level, to regulate the economy and provide aid to help it develop.

If we don't consider these factors before making a law, it will in essence reduce state revenue collection by discouraging people to invest in production development which will accidentally increase the cost of capital mobilisation for the enterprises.

As a consequence it may lead to a bubble property and land market that could in turn cause an economic crisis.