Vietnam workers lose under Asia's highest taxes HANOI - Vietnam's imposition of the highest income tax rates in Asia has stunted the professional development of its people by making foreign firms reluctant to employ skilled workers, lawyers and accountants said. They said Vietnam would not attract investment in high-tech industries or see locals replace expatriates in foreign firms until punishing personal income tax rates were cut. ``Foreign employers are finding it difficult, if not impossible, to pay skilled local workers accordingly and are having to discriminate against them because of these unreasonable tax rates,'' said Bill Magennis, managing partner at Australian law firm Phillips Fox in Vietnam. ``This means international firms are keeping work offshore or using foreigners,'' he told Reuters. Foreign firms entered Vietnam with a bang in the early 1990s and helped jumpstart economic growth after years of deadening socialist central planning. Jobs at foreign companies are widely sought after by aspiring Vietnamese professionals. It is common for foreign firms to pay taxes for Vietnamese staff in Vietnam -- a practice which also incurs a separate 30 percent surcharge once gross monthly salaries exceed $850. Foreign investors raised the issue of high income taxes for Vietnamese staff at a meeting with government officials earlier this week. Officials said they would review the matter. The high taxes, along with expensive charges for utilities, a byzantine bureaucracy, corruption and excessive state control of the economy have hobbled Vietnam's competitiveness and soured foreign investment sentiment. A report produced by global accounting firm Ernst & Young shows that the highest marginal tax rate in Vietnam of 60 percent kicks in once a local employee grosses around $720 a month, normal for sales, marketing and some banking staff. On the equivalent salary, the next highest marginal rate in Asia is Indonesia and the Philippines with 30 percent, followed by South Korea and China with 20 percent, said the report, a copy of which was obtained by Reuters. Vietnam's tax rates also discriminate against locals in favour of foreigners. An expatriate's net monthly wage of $2,000 incurs a tax bill of $375, Ernst & Young said. Put the same amount in a local's pocket and the tax bill is a minimum $3,580. ``Vietnam's high employment costs are eroding its ability to compete with other countries in the region...,'' it said. After Vietnam's 60 percent marginal rate, the next highest overall is Japan with 50 percent, the report said. Just why Hanoi taxes local employees so heavily is unclear, and the rates apply equally to foreign and local firms. But many local companies, which do not have the profile of multinationals, evade the tax system, accountants say. If firms in Vietnam want local workers to net above $1,000 per month their tax bill goes off the chart. For a net salary of $1,500, a firm's tax bill would rise above $3,000, while on take-home pay of $2,500, the bill soars to $5,500 because the marginal rates and the 30 percent surcharge applied against gross salaries kick in so quickly. These rates also do not include other costs such as social and health insurance fees. REUTERS - June 17, 1999