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The Ministry of Finance is gathering feedback on proposed changes to the Personal Income Tax Law. Experts have suggested raising the taxable income to VND 15-20 million, lowering the highest tax rate to 25-30 percent, simplifying the tax schedule from 7 to 3 or 4 levels, adjusting the tax rate paid by year, and so on.
According to Dr. Dinh Trong Thinh of the Academy of Finance, there are numerous concerns that need to be revised since personal income tax regulations are outdated and have a big impact on people’s lives. The tax payable is not appropriate, the payment rate is unfair, and the family circumstance deduction does not correspond to reality… these are the difficulties that taxpayers face. Dr. Thinh proposed removing three tax levels from the partially progressive tax schedule that applies to wages and salaries, namely 15%-25%, and 35%, as well as reducing the number of tax tiers from seven to four, namely 5%, 10%, 20%, and 30%.
Raise the family circumstance deduction
Furthermore, he stated that the gap between tax levels should be expanded, with a 5% tax rate applied to taxable income between 15 and 20 million VND, and a 10% tax rate applied to taxable income between 20 and 40 million VND.
According to Dr. Dinh Trong Thinh, the lowest taxable level, commonly known as the family circumstance deduction level, should be reviewed to fit the current situation. Because 11 million VND per month is insufficient to live in urban areas in its current condition, it cannot be deemed a high taxable income. In my opinion, the Ministry of Finance should raise the level of taxable income in order for income tax payment to truly become a tool for controlling high-income earners. The minimal taxable income should be around 15-20 million VND per month.
According to Dr. Thinh, this number needs to be raised even higher because the present tax rate for dependents is 4.4 million VND/person/month, which is insufficient to sustain a child in the city. Taking care of an elderly person who is unable to work is insufficient. The cost of medicine, hospitalization, and other medical procedures has risen. Increasing it requires a precise calculation of the minimum level of living. Simultaneously, a new minimum standard of living must be established, which cannot remain unchanged as living conditions improve, inflation rises, and prices rise.
Assoc. Dr. Ngo Tri Long, former director of the Institute for Price Market Research, agreed with the above proposal because the current progressive personal income tax schedule has 7 levels and a wide gap between them. That also, combined with high tax rates, places a significant burden on wage earners. Assoc. Dr. Ngo Tri Long advocated lowering the tax rate of the levels and reducing the personal income tax level to 3-5 levels.
According to Dr. Dinh Trong Thinh, existing consumer price index (CPI) figures do not adequately reflect the rise in the cost of essential goods and services that individuals must pay in their daily lives. Not to mention that, according to regulations, it must be presented to the Standing Committee of the National Assembly if the CPI rises by 20%, resulting in delays in the adjustment of employee deductions over time. The analysis of the CPI% fluctuation that has recently adjusted the family circumstance deduction demonstrates that this regulation disadvantages taxpayers.
In Vietnam, inflation has typically risen at a rate of 3–4 percent per year over the last 5–7 years, according to Dr. Dinh Trong Thinh.It will take around 5 years to modify the family circumstance deduction if the CPI climbs by 20%. Meanwhile, the annual increase in the Consumer Price Index (CPI) has an impact on taxpayers’ income and quality of life. There will be an increase or reduction depending on the real situation; these variables include market fluctuations, prices, pandemic conditions, average income, etc. Mr. Thinh went on to say that because digitization is being implemented across all industries, the adjustment of tax payments should be made easier as well.
According to Dr. Dinh Trong Thinh, the world’s highest personal income tax rate of up to 35% is out of step with global trends. While businesses benefit from tax incentives that have been reduced from 25% in 2010 to 20% in 2020, the personal income tax remains unchanged. This puts a lot of pressure on the taxpayers. The most appropriate change is to reduce it to 25-30%. Taxpayers will be more satisfied at that time as well. The current personal income tax rate is irrational, has too many levels, is inconvenient, and is excessively high in comparison to the average person’s income.
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