Setting up a company to avoid taxes.

Tax evasion, transactions using personal accounts…

Ms. Thuy Linh (District 10, Ho Chi Minh City) said she recently visited a beauty salon for laser treatment to treat freckles, costing over 5 million VND, and bought facial creams worth over 2 million VND. All payments were made in cash, and no receipts were issued because she didn't need them. If she had requested a receipt, she would have had to pay an additional 10% value-added tax. Similarly, Ms. Thanh An's family (District 3, Ho Chi Minh City) frequently dines out, and some establishments refuse credit card payments, only accepting cash or bank transfers. Notably, the account numbers listed sometimes belong to the restaurant's accountant, other times to the manager… This means the restaurant's revenue flows into an individual's account instead of a company account with a registered tax code. These situations can create significant loopholes, making it difficult for tax authorities to accurately track the revenue of many businesses. This means that tax payments are reduced, and losses increase.

Salaried employees pay significantly more taxes than both businesses and self-employed individuals.

Furthermore, personal income tax (PIT) is based on a progressive tax rate of 5-35%, while businesses only pay 20% corporate income tax on their profits. Not to mention that individuals are only allowed a fixed allowance of 11 million VND/month for expenses and 4.4 million VND/month for dependents, while businesses can deduct all reasonable and legitimate expenses before calculating tax. Therefore, to avoid taxes, many individuals have sought to establish companies to reduce their tax liability. Ms. Thanh Nhan (District 7, Ho Chi Minh City) is an individual with experience in organizing events. In recent years, during the summer, she has been hired by a children's game company to organize a program for 500 million VND. Each time she receives payment, Ms. Nhan is deducted 10% tax, equivalent to 50 million VND. Moreover, because she has two different sources of income, she has to file and settle her taxes at the tax office herself at the end of the year. With a total annual income of approximately 1.1 billion VND, Ms. Nhan only received a personal allowance of 132 million VND, leaving her with 220 million VND in taxes. "Actually, the 500 million VND spent on the event seems like a lot, but the travel and organization costs were also high. I also had to hire extra staff and pay them. But the company paid for everything, so it was all included in my income, and I had to bear the entire tax burden. Then some friends advised me to open my own company to get a tax deduction, so I followed their advice, and it was much more advantageous," Ms. Nhan said, adding that she used her rented house as her office, listed relatives as employees, and added travel and client entertainment expenses with receipts. As a result, the amount of tax she had to pay when separating the 500 million VND through the company was negligible because the profit was very small after deducting all operating expenses. At the same time, her income at another company last year was only about 600 million VND with taxes paid of nearly 80 million VND, much lower than the combined income from both sources before establishing her own business.

Many revenue sources are being overlooked.

Mr. Nguyen Thai Son, Director of Saigon Tax Consulting Company, stated that in reality, many individuals can still evade taxes by reducing their income, thereby lowering the amount of tax payable. Even for businesses paying flat-rate taxes, tax authorities still find it difficult to fully manage all revenue sources. Only salaried employees cannot evade taxes; they are taxed on every penny earned. According to Mr. Son, the high personal income tax rate is the reason why many people want to "avoid" taxes. With the current personal allowance for taxpayers at 11 million VND/month and only 4.4 million VND/month for dependents, it is very difficult to cover living expenses, especially in expensive cities like Ho Chi Minh City. Not to mention that the Personal Income Tax Law officially came into effect in 2007, introducing 7 tax brackets from 5% to 35%, but the gaps between the brackets are quite small, with incomes from 5 to 20 million VND jumping up a bracket. The lowest brackets, with incomes as low as 5 million VND, jump from 5% to 10%, putting even more pressure on taxpayers. Therefore, Mr. Son suggested that individuals should be allowed to deduct reasonable and legitimate expenses with complete invoices and supporting documents before determining taxable income. For example, tuition fees, food expenses, medical expenses, mortgage payments, etc. In this case, individuals would obtain invoices when purchasing goods and services, allowing the tax authorities to better understand the actual revenue from businesses and households.

If an individual self-employed earns 1.5 billion VND per year, they pay between 22.5 million and 105 million VND in taxes, depending on their business sector, with tax rates ranging from 1.5% to 7%. Meanwhile, an employed person with one dependent receives a family allowance deduction of 184.8 million VND, bringing their taxable income to 1.31 billion VND. This would result in a personal income tax of 342 million VND (28.5 million VND/month x 12 months). Thus, the personal income tax rate on total income is 22.8%. Compared to individuals engaged in the sale of goods (which accounts for the highest proportion of all business sectors) who only pay 1.5% tax, salaried employees are paying 15 times more in taxes.

Lawyer Tran Xoa, Director of Minh Dang Quang Law Firm

Concurring, Dr. Nguyen Van Thuan from the University of Finance and Marketing also believes that the current regulations on personal income tax for salaried employees are unreasonable, especially the family allowance deduction for both the taxpayer and their dependents, which is too low and insufficient to cover the living expenses of many families. Meanwhile, singers, artists, YouTubers, and TikTokers can easily establish private companies, thereby declaring many additional employees and deducting all legitimate expenses, but in reality, all revenue belongs to the individual. Therefore, the tax rate paid through the business will be lower than the tax rate that salaried individuals have to pay annually. Furthermore, businesses will have many ways to allocate expenses in the most advantageous way before calculating taxes, so the tax rate will be even lower. These are the shortcomings of the tax law that have caused frustration for salaried employees for many years. It is also because the tax is unfair and unreasonable that many people try to evade taxes, causing revenue losses for the state budget.

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