General Department of Taxation Business household is not household

According to provisions of the law on tax, any individual, households engaging in business activities also incur tax obligations. Source: Internet

The draft circular on tax instruction and management for business households, drafting board has replaced subject for application and imposing tax as a business household instead of a household. Others have stated that, instead of calling all individuals, groups and business households ( it means that business households between members of the household), the Ministry of Finance may just build regulations on tax administration for business households in general.

Responding to this issue, the General Department of Taxation said the business household is not a household. The reason is, according to the regulations on business registration, it stipulates the concept of “a business household is registered for establishment by an individual or household members”.

However, according to provisions of the law on tax, any individual, households engaging in business activities also incur tax obligations (except for the income of households and individuals directly participating in activities of agricultural production, forestry, salt making, aquaculture and fishing that are unprocessed or just go through preliminary treatment and are not processed into other products), there is no distinguishing between implementing business registration as a business household or not.

In the current context, the business activities of individuals are not only a household model operating independently within a limited space at the place of residence but has developed in many different forms such as business cooperation with organisations, participating in sharing economic chains, operating digital, operating across borders or without a fixed business location.

The new draft circular stipulates the scope of application for “business households” and “business individuals” is appropriate to cover subjects engaging in business activities subject to tax.

Besides, for the legal tax adjustments to the business activities of persons, there are only two main taxes including value added tax and personal income tax. In terms of households, if it is not engaged in production and business activities, it can only be subject to tax on using non-agricultural land. Therefore, in the draft circular, the concept of a “business household” is not used because the scope of the circular only applies to business activities.

The General Department of Taxation stated that according to the regulation on import tax, there are 10 taxable incomes with different tax rates and calculation methods. In particular, only income earning from salaries and wages will be applied progressive taxation (tax rates from 5% – 35%), while other incomes are applied the full tax rate.

Business activities are subject to the whole income tax table specified for each sector, in which the service providing sector (including the provision of digital information content services) is subject to the value-added tax rate by 5% and personal income tax by 2% (the total of two taxes is 7%).

According to the General Department of Taxation, if comparing the tax rate of the business individual (7%) with the highest tax rate of an individual earning income from wages (35%) is not appropriate, because about 90% of individuals earning income from salary are only at level 1 and level 2 (5% -10%).

In addition, the whole income tax table for an individual’s business should be similar to the tax rate of an enterprise with the same type of business, not comparable with income from wages to apply the progressive taxation. The General Department of Taxation affirmed this regulation is also consistent with international practice on individual income tax.