Is flexible family deduction appropriate?
Mr. Minh - a freelancer in Hanoi - shared: "The current family deduction for dependents is only 4.4 million VND/month, while I have to support three children in high school and my elderly parents. However, my income is only enough for basic living expenses, plus the taxes I have to pay, I feel very difficult. If the family deduction is increased, I will be able to reduce some of the financial burden and focus more on work."
Mr. Minh’s story is not uncommon. While big cities like Hanoi and Ho Chi Minh City have a high standard of living, in other areas like Bac Ninh and Lao Cai, the family deductions do not keep up with the increase in living costs, causing inequality in the implementation of tax policies.
Speaking with Lao Dong, Associate Professor Dr. Phan Huu Nghi - Deputy Director of the Institute of Banking and Finance, National Economics University - said that adjusting the family deduction level is necessary in the context of rapidly changing income and living expenses, however, the proposed level of 13.3-15.5 million VND still does not fully reflect the actual income and living expenses.
Mr. Nghi also added that Vietnam is a middle-income country, so it is not possible to expand personal income tax to the entire population, but it is necessary to focus on taxing the group with average income and above. Therefore, determining the deduction level is not only based on average income per capita or living expenses, but also needs to take into account an important factor, which is the most common income level that the majority of wage earners currently have.
Mr. Nguyen Quang Huy - CEO of the Faculty of Finance and Banking, Nguyen Trai University - commented: "The current deduction level is outdated. Actual costs of education, healthcare, housing, energy, etc. in urban areas have all increased more strongly than the CPI and the level of 13.3-15.5 million VND has not kept up with this increase rate."
Mr. Huy emphasized the need to link the adjustment of the deduction level to the consumer price index (CPI) and the national median income, and allow automatic annual adjustment, instead of waiting for a law amendment. “In addition, we should study the zoning mechanism - for example, the deduction level in Ho Chi Minh City and Hanoi is higher than in the provinces - like the current regional minimum wage regulations,” Mr. Huy said.
According to experts, the cost of living has increased significantly over the past 5 years, especially in big cities such as Hanoi, Ho Chi Minh City, and Da Nang. The gap between urban and rural living costs is increasingly evident, with essential expenses such as housing, education, healthcare, and energy increasing sharply.
For example, a family living in Ho Chi Minh City or Hanoi - where the cost of living is many times higher than in mountainous provinces - needs to spend an average of about VND40 million/month just to meet basic needs. Meanwhile, the maximum family deduction of VND15.5 million/month is not enough to reduce tax pressure for these families.
According to a recent report by the General Statistics Office, the spatial cost of living index (SCOLI) in 2024 reflects the difference in prices of goods and consumer services serving the daily lives of people between provinces and centrally run cities, between socio-economic regions in a certain period of time. This report said that before the merger, the Southeast region held the position of having the most expensive prices in the country with the SCOLI index in 2024 equal to 100.37%. The second place was the Red River Delta region at 100%, followed by the Northern Midlands and Mountains at 99.98%, the North Central and Central Coast at 99.05%, the Central Highlands at 97.69% and finally the Mekong Delta at 97.11%.
This index shows that with the same income level, spending and economic pressure are different. Therefore, applying family deductions by region also has its own rationality.
Experts propose adjusting the family deduction level according to the actual income and expenditure of each region, instead of applying a common level for the whole country. This can be done based on the regional minimum wage, as the current regional minimum wage policy is applied. The family deduction level for taxpayers and dependents in big cities such as Hanoi and Ho Chi Minh City will be higher than in mountainous provinces and remote areas.
How does the Ministry of Finance explain?
In the draft resolution of the National Assembly Standing Committee on family deductions, the Ministry of Finance stated that: The Personal Income Tax Law stipulates deductions for the taxpayer himself and deductions for dependents that the taxpayer must support. This provision reflects the principles of “fairness” and “tax payment capacity”, taking into account the specific circumstances of the taxpayer: People with higher incomes pay more tax, people with the same circumstances but with more dependents pay less tax, people with low incomes do not have to pay tax.
The Ministry of Finance stated: “Recently, there have been opinions that the family deduction level is still low and there are also opinions that it is necessary to regulate the family deduction level according to the regional minimum wage, the family deduction level in urban areas and large cities must be higher than in rural and mountainous areas due to higher costs; there are also opinions that the tax policy should be regulated at a higher level in urban areas and large cities to limit immigration to large cities.
From these opinions, the Ministry of Finance stated its opinion: “The personal income tax rate for taxpayers is a specific rate according to the general level of society, regardless of whether people have high or low incomes, have different consumption needs and live in different regions. Personal income tax laws in countries, including developed and developing countries, only stipulate a general personal income tax rate, applied uniformly, without distinction according to locality and population segments.
For individuals working in difficult areas, the Personal Income Tax Law stipulates that regional allowances, attraction allowances, and transfer allowances to support workers and attract individuals to work in these areas shall not be included in taxable income. For individuals facing difficulties due to natural disasters, fires, accidents, and serious illnesses, the Personal Income Tax Law stipulates tax reductions for these cases.
The Ministry of Finance stated: "The level of GTGC needs to be carefully researched and calculated, ensuring that it is higher than the average GDP per capita, the regional minimum wage, and the average spending level per capita in a certain period of time."
Dr. Nguyen Ngoc Tu proposed to increase the family deduction to 18 million VND/month and apply it from 2025, instead of waiting until 2026 as in the draft. In an interview with Lao Dong Newspaper, Dr. Nguyen Ngoc Tu - Lecturer at the University of Business and Technology - proposed that the family deduction should be raised to 18 million VND/month for taxpayers and 9 million VND/month for each dependent. This is a level supported by many experts because it is closer to the actual spending of workers, especially in urban areas, where the cost of living has increased significantly compared to the period before 2020. Another important point emphasized by Dr. Tu is the timing of application. According to the draft, the new family deduction policy is proposed to be applied from the 2026 tax period. However, he believes that it should be applied earlier, from 2025. “Technically, personal income tax for 2025 will not be finalized until April 2026. Therefore, adjusting the deduction level applicable for 2025 is completely feasible, without any obstacles in implementation,” he analyzed. |
Source: https://baoquangninh.vn/bo-tai-chinh-ly-giai-viec-khong-giam-tru-gia-canh-theo-khu-vuc-nhu-luong-toi-thieu-vung-3368445.html
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