Amend the Law on Personal Income Tax in Vietnam

The Law on Personal Income Tax during the implementation process has revealed many shortcomings, such as the reduction of family circumstances which is too low compared to spending levels, many tax levels and high taxes compared to income. Therefore, experts have made many proposals, including raising the deduction for family circumstances to 20 million dong.

The Ministry of Finance is collecting opinions on amending the Law on Personal Income Tax (PIT), which evaluates each group of issues. It includes taxpayers, taxable income, tax-exempt income, tax base, method of determining payable tax amount, tax rate, and family circumstance-based deduction.

The family deduction is too low

In fact, according to the provisions of the current Law on Personal Income Tax, individuals are entitled to deductions from social insurance, health insurance, unemployment insurance, minus deductions for family circumstances, charitable contributions, humanitarian aid, allowances and allowances are deducted (if any), the rest is income as a basis for PIT calculation.

The way to calculate PIT for salaries and wages is according to the 7-step progressive schedule, each income level has a corresponding tax rate. In which, the lowest is level 1 with a taxable income of up to 5 million VND/month, the tax rate is 5%; The highest is level 7 with taxable income of over 80 million VND/month, the tax rate is at 35%.

From July 2020, the family circumstance-based deduction for taxpayers themselves is adjusted to increase from 9 million to 11 million VND /month and for each dependent to increase from 3.6 million to 4.4 million VND/month, but the above level was considered obsolete when the economy was constantly growing, the prices of goods and services increased, causing taxpayers to spend a lot of money to cover their lives.

Along with that, the tax rate is too thick with short tax steps, which puts a lot of pressure on taxpayers, because income has just moved up and has fallen into a higher tax rate.

Proposed reduction of family circumstances to 20 million

Economic-financial expert Dinh Trong Thinh said that the current PIT Law has some shortcomings, that is, the reduction in family circumstances for taxpayers and dependents does not guarantee the lives of people living in the big cities with lots of expenses. Therefore, the family deduction for taxpayers should be raised to VND 15-20 million. Along with that, the deduction for dependents also increased.

In addition, there are many tax levels and high tax rates compared to the general income of people, especially the 35% tax rate. While businesses enjoy tax incentives, the personal income tax for salaried employees remains the same. Therefore, this expert suggested that only 4 tax levels should be left at 5%, 10%, 20% and 30%. The taxable rate of 5% applies to the taxable portion of VND 15-20 million instead of up to VND 5 million as at present; The tax rate of 10% applies to the taxable income of VND 20-40 million.

According to regulations, the adjustment of deduction for family circumstances is only made when the accumulated consumer price index (CPI) over the years increases by 20%. This expert said that Vietnam’s GDP per capita has increased much compared to before, for example, in 2019 it was about 3,000 USD, up 36% compared to 2013.

Therefore, it is not appropriate to rely solely on the CPI increase to adjust the taxable threshold. Adjustment of family deduction should not only be based on CPI but also need to be based on people’s income growth, because PIT applies to people with high incomes, not to the majority of people with high incomes. average input.

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