TAXES! — VietEcon

This is the week for taxes in the US, and I was listening to a podcast on taxes and the IRS and the sh!t-show that is the US tax system. So of course, I started to think about Vietnamese taxes, specifically personal income taxes. Which at first glance seem higher than I expected, although after digging a bit deeper affect very few people. The high end of the scale is 35%, which hits after $42,000. But with standard deductions of VND9m a month plus more for children, it hits very few people. Two simple calculations:

High-level expat manager making $150,000 a year. Turns out the expat part is meaningless. She will pay taxes like all Vietnamese. Let’s assume she has 2 kids, and is able to deduct VND3.6m monthly for each, along with a starting VND9m monthly deduction. So that means: VND3480 - (108 + 3.6 x2x12) = 3480. Tax = 60 x 5% + 60 x 10% + 96 x 15% + 168 x 20% + 240 x 25% + 336 x 30% + 2,425 x 35% = VND1066. Ultimately that means 31% of gross income. As you get higher and higher, it gets closer and closer to 35% tax.
Expat teacher making $30,000 a year. This looks like an extremely high salary, based on what I’ve seen. Assume 2 kids as well. That results in a tax of VND111m, or 16% of gross income.

There are other contributions to be made (unemployment, health insurance). But in some ways those are payments of services, or potential services.

More importantly, the government has a VAT, which is 10% for most goods. The government tried to raise this to 12%, but reversed itself after pushback. A property tax is in the works as well, but of course real estate people are up in arms. Remember, no one likes taxes.

By my calculations, if someone has a $100,000 property, then they will pay just $279 a year. Doesn’t seem that big of a deal, to be honest. And if someone has a $100,000 property in Vietnam, they can probably afford $279 a year.

Anyway, putting this all together, it looks like all taxes are pretty comprehensive, albeit with personal income starting at a fairly high level so poor earners don’t pay that much. Look at the deductible: it starts at VND9m and goes up by the number of dependents. Compare that to the average monthly salary for highly skilled employees of around VND11m. Unskilled is much less than that. So basically, most people don’t pay the income tax.

So it is still somewhat surprising that the government revenue as a percentage of GDP is 17-18% (2010-12, the latest dates for which data are available). Corporate taxes are 20%, plus there are higher taxes on oil & gas and other natural resource enterprises (32-50%). It adds up to a figure well above ASEAN and the OECD levels. The US is only at 12%! Of course these tax figures exclude most social security contributions, which make up a big portion of “tax” payments in developed markets.

In the past 10 years, in 7 of them, the government made it easier to pay taxes (business or personal), either by simplifying them, lowering them or making some other change that “makes it easier to do business” in Vietnam. This is according to the World Bank. So it looks like the trend is for these taxes to go down. And the pushback on VAT and property taxes means it will be hard to raise them.

It will be interesting to see that figure of taxes fall or rise over time. Surprisingly (or not), government expenditures are above 21%, so taxes aren’t fully funding the government; debt and printing money are big portions of it. If it were only domestic debt, that could be fine, but as we discussed in my MMT posts, external debt brings its own issues.