National Assembly member Le Thi Song An from Tay Ninh presented this proposal during a hall discussion on the afternoon of 19/11. The session addressed two revised laws: the Law on Tax Administration and the Law on Personal Income Tax.

Con Chim islet in the mangrove ecosystem of Thi Nai lagoon (Binh Dinh), 3/2024. Photo: Dung Nhan

Ms. An emphasized the significance of recognizing income from carbon credit transfers. She views it as a proactive step by the Government towards fulfilling international commitments on greenhouse gas emission reduction, simultaneously opening a promising green economy sector.

A carbon credit is a tradable license or certificate. It holds market value and grants its holder the right to emit one ton of CO2 or another specified greenhouse gas.

The draft revised Law on Personal Income Tax, proposed by the Ministry of Finance, currently suggests that income from this activity be tax-exempt only for the first transfer. Ms. An contended that this regulation is neither reasonable nor aligned with the State's policy to foster carbon market development.

Income generated from selling carbon credits plays a crucial role in improving livelihoods for people in many localities, particularly in forest regions. Local participation in forest protection not only provides direct income but also enhances community awareness regarding forests' role in sustainable development.

"In many areas, the carbon credit mechanism has helped restore forests, improve ecosystems, and encouraged people to plant more trees", Ms. An stated.

Furthermore, Vietnam's carbon market remains in its initial stage. It requires more time to develop comprehensive policy frameworks and effective oversight mechanisms. A tax exemption policy limited to only the first transfer does not provide enough impetus for sustained growth.

Ms. An believes that foregoing income tax regulation for this activity during its early phase would actively encourage individuals, businesses, and communities to participate. This approach would contribute to an efficiently operating market.

Should the Government decide to maintain tax regulation for this income type, Ms. An recommends extending the tax exemption period to cover subsequent transfers.

Globally, several countries implement income tax exemption or reduction policies for carbon credit transfers, primarily to support businesses. Thailand, for example, exempts corporate income tax for the three most recent accounting periods for emission reduction projects registered between 2023 and 2027.

Malaysia, however, does not offer a full tax exemption. Instead, it provides a tax deduction package of up to 300,000 RM (over 72,000 USD) for businesses registered on the Bursa carbon exchange from 2024 to 2026. This initiative aims to mobilize private resources in support of national climate goals.

Anh Tu - Thuy Truong