Fixing business household tax: Don't ignore the "enforceability" factor

The household business sector is becoming the focus of policy adjustment in the process of improving the tax law system in Vietnam. This region has a large number of subjects, a wide distribution, making a significant contribution to the circulation of goods and services, but at the same time also poses many challenges in tax management. Recent changes, including the adjustment of the taxable revenue threshold to about 1 billion VND/year and the absence of the traditional flat tax mechanism, indicate a shift towards a more transparent management model, based on data and self-declaration obligations of taxpayers.

Business households in large urban areas can achieve significantly higher revenues than rural areas, but at the same time incur higher operating costs.

However, this reform is not only a matter of adjusting specific regulations, but also directly related to the compliance capacity of business households, a group of subjects with their own characteristics in terms of scale, management level and access to technology.

Revenue threshold of 1 billion VND/year: Limitations to note

The raising of the taxable revenue threshold from 500 million VND to about 1 billion VND/year represents a policy adjustment in the direction of supporting micro- and small-scale business households with not large added value. From a legislative point of view, the use of revenue criteria to classify taxpayers is a common approach, because of its simplicity and wide applicability, but this approach also has certain limitations.

First of all, revenue does not directly reflect profits, the core factor for assessing taxability. In many sectors such as retail, food service or essential goods trading, input costs can account for a large proportion, making the actual profit margin low. The application of tax liabilities based on revenue without adequate consideration of the cost factor can lead to a mismatch between tax liability and financial viability.

In addition, the application of a uniform revenue threshold nationwide, regardless of geographical region or industry, may not fully reflect the difference in business conditions. Business households in large urban areas can achieve significantly higher revenues than rural areas, but at the same time incur higher operating costs. This requires the need to continue to study additional classification criteria to ensure the reasonableness in determining tax obligations.

Transforming tax management methods: Need practical support

The elimination of flat taxes is important in improving the transparency and fairness of the tax system. The previous contracting mechanism, although it had the advantage of simplifying procedures, had potential limitations in properly reflecting business realities and lacked a clear verification basis. When switching to the new mechanism, tax liabilities are determined based on specific data, helping to minimize estimation factors and increase objectivity and fairness in management.

However, this transformation also poses new requirements for business households. Instead of only fulfilling the obligation to pay tax at the fixed rate, business households need to record revenue, store documents and declare according to regulations. This requires a certain level of financial management skills and the ability to use support tools.

Notably, the majority of business households today are operated by middle-aged or elderly individuals with traditional business methods. Asking this group of people to switch to using e-invoices, declaration software or digital platforms can create a significant gap between legal regulations and the ability to implement in practice. Without an appropriate support mechanism, the risk of violations due to non-compliance with regulations is predictable.

In addition, relying on third parties to fulfill tax obligations is also an issue that needs to be considered. In the condition of not being able to self-declare, many business households may have to hire support services, incurring costs and potential risks related to information control. This shows that the reform of tax administration methods should be accompanied by practical support measures, to ensure feasibility.

Source: The Saigon Times

Ensuring the feasibility of tax policies

In order for tax policies for business households to be effective, it is necessary to have a synchronous approach, not only stopping at amending regulations but also organizing enforcement in accordance with the characteristics of the subjects of application.

First of all, in terms of policy design, it is possible to consider adding flexible mechanisms in determining tax obligations. In addition to the revenue criterion, it is necessary to study the possibility of combining with other factors such as industry, average profit margin or scale of employment. This approach helps to more closely reflect the reality of business activities and minimize disproportionate tax liability.

Next, in terms of management methods, the implementation of technology needs to be carried out in the direction of maximum simplification for users. Tax declaration and management tools should be designed with a user-friendly, easy-to-understand interface, with intuitive instructions, suitable for people without accounting expertise. At the same time, it is necessary to have a reasonable application roadmap, avoiding simultaneous application in a short time that puts pressure on taxpayers.

Another important factor is the enhancement of direct support. Tax authorities can coordinate with local authorities to organize guidance sessions, training sessions or set up support points at the grassroots. For older adults, communicating information needs to be done in a simple, accessible way, rather than just through online channels.

In addition, the development of a service system to support tax declaration at a reasonable cost is also a necessary solution. Organizations providing these services need to be managed according to regulations, ensuring clear practice standards and legal responsibilities. This not only helps business households reduce the burden of compliance but also contributes to improving professionalism in performing tax obligations.

Finally, in the long term, it is necessary to set a goal to create conditions for business households to convert to a business model when they meet all conditions. This is a direction in line with the requirements of transparency and improving management efficiency, and at the same time helping business households have better access to development resources. However, the transition needs to be accompanied by specific support policies, including tax incentives in the early stages, training support, and legal advice.

The adjustment of the taxable revenue threshold to about 1 billion VND/year and the transformation of the tax administration method in the direction of no longer applying the presumptive tax mechanism are steps in line with the orientation of reforming the tax system in Vietnam. However, in order for these changes to be truly effective, it is necessary to have a comprehensive approach, combining the completion of legal regulations and ensuring the feasibility of the implementation organization.

Understanding the characteristics of business households, especially the factors of age, small scale and limited access to technology, is a necessary condition for designing appropriate policies. Only when regulations are developed on a practical basis and accompanied by effective support measures, the tax system can achieve the goal of both ensuring budget revenues, creating favorable conditions for people's legitimate business activities and ensuring fairness among taxpayers, which is something that the State needs to weigh remind thoroughly.

Lawyer Nguyen Nhat Duong

HM&P Law Firm

Read more: Sửa thuế hộ kinh doanh: đừng bỏ qua yếu tố ‘khả năng thực thi’