A Comparative Study on Individual Income Tax Burden of Vietnam and China

Transcription

1 A Comparaive Sudy on Individual Income Tax Burden of Vienam and China Cung Huu Nguyen 1,2 & Hua Liu 1 1 School of Managemen, Huazhong Universiy of Science & Technology, Wuhan, China 2 Faculy of Economics & Business, Hung Vuong Universiy, Vie Tri, Vienam Correspondence: Cung Huu Nguyen, Faculy of Economics & Business, Hung Vuong Universiy, Vie Tri ciy, Phu Tho province, Vienam. Tel: cungnh_hvu@yahoo.com Received: February 20, 2014 Acceped: May 23, 2014 Online Published: May 27, 2014 doi: /bmr.v3n2p60 URL: hp://dx.doi.org/ /bmr.v3n2p60 Absrac The individual income ax is one of he mos imporan axes in Vienam and China, bu deermining is opimal burden is a difference in boh wo counries. The purpose of his paper is o analyze and compare he individual income ax burden beween China and Vienam. The findings show ha Vienam s burdens were higher han China during he period of To come up wih hese findings, he auhors use a combinaion of he descripive and empirical mehod. The descripive saisics mehod poin ou ha he growh of Vienams GDP per capia and individual income ax revenue per capia was respecively 17.32% per year and 36.26% per year. These wo indicaors of China were 17.61% and 19.93%, respecively. The empirical mehod shows ha Vienam s GDP per capia increased 1 uni, he individual income ax revenue per capia would raise from unis o unis. In China, hey were respecively from unis o unis. Keywords: Tax burden, Individual income ax, Individual income ax burden 1. Inroducion and background In economics, he Laffer curve shows a relaionship beween ax raes and governmen's ax revenue. From 0% ax rae wih governmen s zero revenue o an opimal ax rae wih governmen s maximum revenue, bu exceeds an opimal ax rae o 100% ax rae, governmen s ax revenue will decrease o zero. However, he acual exisence and shape of he curve is uncerain and dispued (Tucker, 2010). The objecive pracice shows ha he applicaion of axes occurs in wo rends: firsly, if he ax burdens are reasonable, i will be likely o simulae economic growh and increase he sae budge revenues; secondly, if he ax burdens are excessive and exceed he olerance of he economy, i will consrain economic growh (Liu a al, 2012) and a decrease of governmen s ax revenue. A paper found ha for every 1% increase in ax raes above he peak, as a percen of GDP, will cause a 3% decrease in GDP (Romer a al, 2010). Due o acual developmen condiions beween counries are differen, so deermining he opimal ax burden is also differen. Vienam and China are also selecing and applying a sysem of axes, in which he individual income ax is one of he mos imporan duies ha he wo counries do no miss he opporuniy o apply. Bu he applicaion of his ax beween wo counries is no he same from he number of he reforms o he ax burdens. For he number of reforms, in Vienam, which associaed wih he firs sep of ax reform is he formaion of he income ax ordinance on high income earners was issued on 12/27/1990 (The Sae Council of Vienam, 1991). In he second sep of ax reform ( ), his ordinance was amended and supplemened wo imes. The firs ime was in early 1997 (The Sanding Commiee of Vienam Naional Assembly, 1997). The second ime was in mid 1999 (The Sanding Commiee of Vienam Naional Assembly, 1999). In he period of he adminisraive reform of axaion ( ), some aricles coninued o be amended and supplemened wih he changes from he ax raes o he rise of he saring poin of axable income, specially widened axable income gap (The Sanding Commiee of Vienam Naional Assembly, 2004). From 2006 o presen, he individual income ax ordinance on high income earners was replaced by he individual income ax law, passed on 11/21/2007 and came ino effec on 1/1/2009 (Vienam Naional Assembly, 2007). Bu due o he socio-economic developmen condiions were changed, so his ax law coninued o be amended and supplemened in 2012 (Vienam Naional Assembly, 2012), and came ino effec on 01/01/2014. In China, he individual income ax law was passed by he 3rd Conference of he Naional Assembly Depuies course 5 daed on 09/10/1980. And hen i was reformed six imes, namely: he firs reform was Published by Sciedu Press 60 ISSN E-ISSN X

2 passed on 10/31/1993; he second reform was passed on 08/30/1999; he hird reform was passed on 10/27/2005; he fourh ime was passed on 06/29/2007; he fifh ime was passed on 07/29/2007; he sixh ime was passed on 06/30/2011 (Nguyen a al, 2012). For is burden levels, he research resuls show ha an annual average burden of Vienam was nearly 0.57% and lower han China during he period of Bu when he ordinance was replaced by law, so far revenue from his ax is increasing more and more, so lead o Vienam s burdens were higher han China from 2010 o 2011 (Liu a al, 2012). Vienam and China are no desirable ha he excessive burden of axaion is placed on he shoulders of he people, alhough he objecive of increasing he sae budge from axaion is always pursued by hese wo counries. Bu wha is he excessive burden of axaion? The excessive burden of axaion is he efficiency cos, or deadweigh loss, associaed wih axaion (James R. Hines Jr., 2007). Tax-induced reducions in economic efficiency are known as deadweigh losses or he excess burdens of axaion, he laer signifying he added cos o axpayers and sociey of raising revenue hrough axes ha disor economic decisions (Auerbach e al 2001). A repor esimaed he economic cos of higher ax raes, wha economiss ofen refer o as he excess burden or deadweigh loss of axes (Carroll, 2009). There are wo quesions ha he individual income ax burden of Vienam and China during he period was excessive or no? Which counry was he individual income ax burden higher han? The purpose of his sudy will deeply analyze he individual income ax burden of Vienam and China, which is he main reason affecing on saving, consumpion and invesmen. From here, we can compare he burden of he individual income ax beween wo counries. 2. The individual income ax burden: An overview 2.1. Revenue srucure and equiable disribuion Regarding he revenue srucure, in case of China, he change of revenue srucure is becoming clearer. As a percenage of oal revenue from he individual income ax, revenue from salary and wages gradually reduces over ime and accouns for nearly 45% - 50%. This also means ha revenue from oher sources is being increased. In case of Vienam, salary and wages are he main revenue sources of he individual income ax and accouns for a relaively high percenage compared wih oher revenue sources. For example, based on he saisical daa in 2009, revenue from salary and wages was abou VND 9,868.9 billion, accouned for 68.93% of oal revenue from he individual income ax. Meanwhile oher revenues were only abou 31.07%, such as ransfer of real esae (20.12%), prize winning (5.42%), producion and business (4.71%), inheriance and gif (exceped real esae) (0.10%), capial invesmen (0.03%), capial ransfer (0.03%), and ohers (0.66%). In 2010, revenue from salary and wages increased o VND 18,289.7 billion and accouned for 69.59% of oal revenue from his ax, and oher revenues by 30.41%. In 2011, he revenue srucure of Vienam s individual income ax sill had no any posiive change, even a revenue percenage of salary and wages ended o rise and accouned for 74.83%, while oher revenues dropped o 25.17%. From his analysis, we can confirm ha he revenue srucure of Vienam's individual income ax has no ye ensured equiable disribuion of income. Wha is he cause? The inequiable income disribuion of Vienam's individual income ax includes four causes. Firsly, revenue from salary and wages is relaively easy. Inspecion can be made by he ax auhoriies hrough he labor users. Meanwhile, revenue from small business households, individuals and ohers is relaively difficul in Vienam s acual condiions. Secondly, in Vienam, rading of goods or services is primarily done by cash, so i is no easy o conrol individual incomes from he above aciviies. Thirdly, he professionalism of ax collecion and managemen is no ensured as pracical requiremens. Fourhly, he appearance of collusive behaviors beween ax officers and axpayers, causing loss of revenue from he individual income ax. From his analysis, we can give wo conclusions: firsly, Vienam s individual income ax burden was mainly endured by individuals having earnings from salary and wages; secondly, equiable disribuion of income was no guaraneed Tax burden rae In his paper, he auhors will mainly analyze he impac of GDP per capia on he personal income ax revenue in Vienam and China. Because even if oher facors are perfeced as aricles of he ax law, organizaional srucure of ax collecion and managemen, no collusion beween ax officers and axpayers, ec., bu GDP is no reached a high growh rae, income of ciizens is also difficul o cover for boh he full living expenses and ax paymen (Nguyen, Zhou & Liu, 2013). During he period of , Vienam had sill applied he ordinance on individual income ax, he revenue growh rae was abou 34.3% per year. If analyzing he growh of he laer year compared wih he previous year, Published by Sciedu Press 61 ISSN E-ISSN X

3 specific daa for each year of his period is 20.21% in 2001, 17.03% in 2003, 22.56% in 2004, 20.54% in 2005, 17.12% in 2006, 43.17% in 2007, 74.51% in In 2009, Vienam sared o apply he law on individual income ax. Taxable objecs have been exended more and organizaional srucure of ax collecion also has been consolidaed more han he previous ordinance. So he growh of revenue was nearly 45.21% per year during he period of , higher han he period of In China, due o he individual income ax law was applied for a long ime, so ha is revenue sabiliy was higher han Vienam. The growh raes of revenue were from 16.87% o 25.16%. Only one year, his rae was relaively low and abou 6.09% in These figures parly can answer us which counry has a higher burden of he individual income ax. However, o have he mos accurae answer in comparing he burden of he individual income ax beween wo counries, he auhors will coninue o analyze he following conens. In Vienam, during he period of , revenue from he individual income ax ordinance was VND 38,578 billion, an annual average by VND 5,511 billion, and accouned for a very low percenage of oal ax revenue (2.86%). During he period of , due o he ordinance was replaced by he law, so is revenue was increased rapidly, an annual average by VND 25, billion, and accouned for 5.21% of oal ax revenue. In paricular, in 2011, revenue from his ax reached VND 37,161 billion, which is nearly equal o he period of As he whole period of , he annual average growh was approximaely 36.16%, accouned for 3.57% of oal ax revenue. In China, due o he law on individual income ax was applied since 1980, earlier han Vienam and i was reformed 6 imes, so i can be more perfec. The organizaional srucure is gradually professional. The abiliy o check and supervise he aciviies of ax collecion more sric. Hence, he role and posiion of he individual income ax law in China s ax sysem is becoming clearer. I is one of 5 primary axes of abou 17 axes (Nguyen, Liu & Tran, 2012). As a percenage of oal ax revenue, is revenue was over 6.5% per year in he period (Liu, 2011). These analyical resuls show ha a percenage of his ax in China s oal ax revenue was higher han Vienam. Bu i canno affirm which counry has a higher burden of he individual income ax. To ge a more precise answer, we furher analyze he facors ha heir demonsraion level is relaively srong. The flucuaion of GDP per capia and CPI is closely relaed o he deducible level of he individual income ax. Supposedly, he deducible level was suiable o he socioeconomic siuaion of boh wo counries in Bu due o here were he changes of he socioeconomic fields in 2010 and 2011, so he suiabiliy of he deducible level would be changed. Which counry is more suiable? The mos recen reform ime in boh counries is in Vienam did no change he deducible level unil he end of China amended and supplemened some aricles of he individual income ax law since 06/30/2011, included an increase of he deducible level for axable objecs. Moreover, China's CPI was increased lower han Vienam from 2009 o For example, in 2010, he growh of Vienam s GDP per capia was 1.98 imes higher han CPI, meanwhile China s raio was abou 5.48 imes. In 2011, he raio of Vienam and China was abou 1.43 imes and 3.32 imes, respecively. If only consider he impac of CPI, he compaibiliy of he deducible level for axable objecs in Vienam was lower han in China. Because Vienam s CPI increased by a oal of 16.07% in , 34.65% in , meanwhile hese Chinese figures were 2.6% and 8%. This also means ha he backward speed of Vienam's individual income ax law is faser han China. From his analysis, we can give some causes as: firsly, Vienam could no esimae exacly abou he changes of macroeconomic indicaors; secondly, he calculaion of Vienam s deducible level was able o no based on he scienific and pracical base; hirdly, in Vienam, he inervenion of he Sae on he economy is relaively deep and wide, he budge demand is relaively large, he Sae can be for he purpose of increasing he sae budge revenue, so an excessive ax burden was placed on ciizens shoulders. Through analyzing his conen, we firs can confirm ha he burden of Vienam s individual income ax was higher han China during he period of Analyzing he individual income ax burden hrough he relaionship beween wo indicaors are he growh of GDP per capia and he individual income ax revenue per capia. In Vienam, during he period , he growh of GDP per capia was approximaely 17.32% per year, while he growh of he individual income ax revenue per capia was quie high and reached 36.26% per year, 2.1 imes higher han he growh of GDP per capia. In China, he wo above indicaors were respecively and 19.93%, he growh of he individual income ax revenue per capia was jus 1.13% greaer han he growh of GDP per capia. Through hese figures can confirm ha he burden of Vienam's individual income ax was higher han China during he period of An empirical analysis 3.1 Daa To enhance he persuasiveness, we will use he empirical mehod o compare he burden of he individual income ax beween Vienam and China and demonsrae he conclusions in he above analysis overview. The ime period is used Published by Sciedu Press 62 ISSN E-ISSN X

4 by he auhors is 10 years (from 2002 o 2011). Individual income ax revenue per capia and GDP per capia of Vienam and China are in his period (see Table 1). The daa sources of Vienam are from he Minisry of Finance and he General Saisics Office. The daa sources of China are from he General Deparmen of Taxaion and he General Saisics Office. Table 1. GDP per capia and individual income ax revenue per capia during he period of GDP per capia Individual income ax revenue per capia Year Vienam China Vienam China (VND) (CNY) (VND) (CNY) ,736,428 7,972 29, ,623,497 9,030 36, ,780,730 10,502 43, ,185,576 13,944 51, ,688,596 16,456 62, ,583,880 20,117 88, ,372,152 23, , ,277,989 25, , ,788,064 29, , ,859,381 34, , Source: The auhor's calculaions based on daa of he General Saisics Office and Minisry of Finance, Vienam; he General Saisics Office and General Deparmen of Taxaion, China 3.2 Mehod An empirical analysis wih his model will undergo wo seps. Sep 1, he applicaion of he OLS mehod o perform an analysis of he simple linear regression beween he personal income ax revenue per capia and GDP per capia. The regression resuls show ha he effec of GDP per capia on he personal income ax revenue per capia was so srong in he period of Bu his sep appears a coincidence. Based on he resuls of Durbin-Wason es, he regression model of Vienam and China is no appropriae. This means ha he regression model of boh wo counries has an auocorrelaion phenomena grade 1. Sep 2, he auhors will add an independen variable is he ime rend variable. The regression model has wo independen variables. The regression resuls of his sep are saisically significan. Based on he resuls of R 2 and F-saisic, he regression model is appropriae for boh he case of Vienam and China. The value of Durbin-Wason es shows ha i is no he auocorrelaion phenomena grade 1. Due o p_value so small and -Saisic so large, his means ha he effec of independen variables on he dependen variable is really clear. 3.3 Model In he mehod, he auhors have inroduced wo seps o idenify a mos appropriae model. Corresponds o hese wo seps are he following wo models: The regression model 1: Y 0 1 X (1) The regression model 2: Y 0 1 X 2 T (2) In which: = 1 10 (from 2002 o 2011) Y = Individual income ax revenue per capia β 0 = Y inercep β 1 = Slope of GDP per capia β 2 = Slope of ime rend X = GDP per capia T = Time rend (Year) Uni: VND (Vienam), CNY (China) Published by Sciedu Press 63 ISSN E-ISSN X

5 3.4 Resuls In case of Vienam Afer performing he operaions, he regression resuls are in Table 2 and Table 3 below: Table 2. The regression resuls of he model (1) in Vienam Variable Coefficien Sd. Error -Saisic Prob. C X R-squared = Durbin-Wason sa = Adjused R-squared = F-saisic = Table 3. The regression resuls of he model (2) in Vienam Variable Coefficien Sd. Error -Saisic Prob. C X T R-squared = Durbin-Wason sa = Adjused R-squared = F-saisic = The regression equaion of he form: Y = X T (3) According o he regression resuls in Table 3, he value d of Durbin-Wason es by , while he sample size n = 10, number of independen variables in he model k' = 2, decilier d L = and d u = Due o d u < d < 4 d u, he model has no auocorrelaion phenomena. The able of he regression resuls also shows us, R 2 = , his means ha he change of he GDP per capia explained % he flucuaion of he individual income ax revenue per capia. The remaining is due o he impac of oher facors as he professionalizaion of he ax collecion sysem, awareness of axpayers, collusive behavior beween ax collecors and axpayers, and ohers. The values of R 2 and F-saisic are grea, so his model is appropriae. The negaive resul of β 0 and β 2 is consisen wih economic heories. When GDP per capia is by 0, he governmen gains nohing. In case of he posiive resul of β 1, i is also in line wih economic heories. The relaionship beween he GDP per capia and he individual income ax revenue per capia is a posiive sign. To idenify how many unis he personal income ax revenue per capia increases when GDP per capia increases 1uni, he auhors will use he confidence inerval esed mehod o demonsrae he suiabiliy or unsuiabiliy of he regression coefficiens for β 1. Specifically: Reliabiliy α = 5%, decilier (α/2; n-k-1) = (0.025;7) = i - ( /2; n 3) S e( i) i i + ( /2; n 3) S e( i) (4) (i = 0 2) Symmery confidence inerval of β 1 : (5) 1 - ( /2; n 3) S e( 1) ( /2; n 3) S e( 1) β (6) When β 0 = , he economy does no work, GDP per capia by 0, he individual income ax revenue by 0. Wih 95% reliabiliy, considering an average year during he period of , in erms of oher facors are consan, when GDP per capia increased by 1 uni, he personal income ax revenue per capia of Vienam would be increased from unis o unis In case of China Afer performing he operaions, he regression resuls are in Table 4 and Table 5 below: Published by Sciedu Press 64 ISSN E-ISSN X

6 Table 4. The regression resuls of he model (1) in China Variable Coefficien Sd. Error -Saisic Prob. C X R-squared = Durbin-Wason sa = Adjused R-squared = F-saisic = Table 5. The regression resuls of he model (2) in China Variable Coefficien Sd. Error -Saisic Prob. C X T R-squared = Durbin-Wason sa = Adjused R-squared = F-saisic = The regression equaion of he form: Y = X T (7) According o he regression resuls in Table 5, he value d of Durbin-Wason es by , while he sample size n = 10, number of independen variables in he model k' = 2, decilier d L = and d u = Due o d u < d < 4 d u, he model has no auocorrelaion phenomena. The able of he regression resuls also shows us, R 2 = , his means ha he change of he GDP per capia explained % he flucuaion of he personal income ax revenue per capia. The remaining is due o he impac of oher facors. Like he case of Vienam, he negaive resul of β 0 and β 2 is consisen wih economic heories. In case of he posiive resul of β 1, i is also in line wih economic heories. Similarly, he auhors will use he confidence inerval esed mehod o demonsrae he suiabiliy or unsuiabiliy of he regression coefficiens for β 1. Specifically: Reliabiliy α = 5%, decilier (α/2; n-k-1) = (0.025;7) = Symmery confidence inerval of β 1 : β (8) The sign of he parameers is consisen wih economic rules. When β 0 = means ha GDP per capia is zero, he individual income ax revenue per capia is also zero. Wih 95% reliabiliy, considering an annual average during he period of , in erms of oher facors are consan, when GDP per capia increased by 1 uni, he individual income ax revenue per capia of China would be increased from unis o unis. 3.5 Discussion This is a new research opic and he research resuls have an imporan significance for heory and pracice. In pracice, in recen years, excessive burden of Vienam's individual income ax is one of he mos imporan causes affecing he people s savings and invesmen, a he same ime i has a negaive impac on economic growh. This is also consisen wih he heory of axaion, especially he Laffer curve heory (Liu, H., Nguyen, C.H. and Tran, H.T., 2012). In he fuure, he auhors will expec ha his aricle will be developed by wo conens. Firsly, he auhors will compare he burden level of he individual income ax beween Vienam and oher counries in he area, especially wih he counries have he same developmen condiions. Secondly, he auhors will research and collec he daa o add he oher independen variables in he regression model, from which will compare he impac level beween GDP per capia and oher independen variables on he personal income ax revenue. 4. Conclusion and Policy Implicaion In his paper, he auhors have analyzed he impac of GDP per capia on he individual income ax revenue in Vienam and China. A he same ime, he auhors have also compared he burden level of he individual income ax beween Vienam and China. The analyical resuls of he descripive saisics mehod and empirical mehod have a same conclusion ha he burden of Vienam s individual income ax was higher han China during he period of To improve sandard of living, savings and invesmen of he people and simulae economic growh, Vienam is necessary o reduce he individual income ax burden by reforming some aricles of he ax law. Due o he Published by Sciedu Press 65 ISSN E-ISSN X

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