Family tax deduction must adjust each year

Saigon Investment
(SGI) - The Law on Personal Income Tax (PIT) was promulgated in 2007 and finally took effect in 2009, then revised and supplemented in 2012. 

Illustrative photo.

Illustrative photo.

In addition to the achieved results, the PIT Law also revealed several shortcomings and many points that were not consistent with reality, including deduction for family circumstances.

Therefore, the upcoming revised law should raise the family deduction for taxpayers from the current VND 11 mln per month to a higher level, to even VND 18 mln or VND 20 mln per month due to escalating costs of commodities. Now the current level of VND 11 mln per month has become irrelevant. Along with this, the family deduction for dependents which is currently VND 4.4 mln per month, should also be raised to 50% to 70%, or about VND 6 mln or VND 7.5 mln per month.

Because the current level of VND 11 mln per month is not enough to live in urban areas, it cannot be considered a high taxable income. In addition, the Law on Personal Income Tax also reveals other limitations when many benefits arise that are not within the scope of salary and wages such as spiritual allowance, downsizing, and one-time allowance when registering for early retirement, which is not deducted in the determination of taxable income from wages, while these allowances reflect the fact that the taxpayer is in a difficult situation.

The tax rate for dependents, according to current regulations, is VND 4.4 mln per person per month. This amount of money is not enough to feed a child in the city, even less to take care of an elderly person who is no longer able to work. Therefore, this level must increase further, and how to increase it requires an accurate calculation of the minimum standard of living. This requires building a different minimum standard of living, not the level applied for decades, as living standards have improved, and inflation and prices have increased. As for the tax rate for dependents, in my opinion, it should be considered and adjusted on an annual basis.

The 2012 revised Law on Personal Income Tax stipulates that in case the Consumer Price Index (CPI) fluctuates more than 20% compared to the time when the PIT Law came into force or the most recent time adjusted for the family deduction, the Government shall submit to the Standing Committee of the National Assembly to adjust the deduction for family circumstances in line with price fluctuations to apply for the next tax period. However, in fact, CPI and wages from 2012 to 2019 have continuously increased.

Statistics show that Vietnam's CPI from 2013 to 2019, before the outbreak of the Covid-19 pandemic, increased by 23.55%. This is to say that the CPI has far exceeded the minimum level of 20% so that the Government can consider adjusting the family deduction for taxpayers. At the same time, the aggregate data also shows that the rate of increase of CPI of 23.55% is much slower than the rate of increase of the base salary of 36.79% and the rate of increase of the minimum wage of 60.91%.

Therefore, the Personal Income Tax Law should also be considered based on the salary increase rate to change the deduction for family circumstances accordingly. Because wages are closely linked with employee income, the salary increase rate is issued annually by the Government, after consulting with the labor-management agency and the business community.

I think that the current partial progressive tariff with seven tax levels is too dense and not suitable anymore. The current tax rate is also too high, nearly double the corporate income tax rate. Therefore, it should be reduced from the current seven progressive steps to three steps. In which, the lower level is for the income group of less than VND 30 mln per month, the middle level is from VND 30 mln to VND 100 mln per month, and the high level is from VND 100 mln per month or more.

Regarding tax rates, the lower tier should only collect tax at 2% instead of the current 5%, the middle tier at 10% and the higher tier at 20%. This design will make it easy for people to understand and implement, especially for income groups below VND 30 mln per month.

Asso. Prof. Dr. Đinh Trọng Thịnh

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