Urgent need to revise personal income tax.

A collective petition proposes increasing the personal allowance.

The Ministry of Finance has just released a summary, explanation, and response to comments on the draft Personal Income Tax Law. In it, a number of ministries, sectors, and localities have proposed increasing the personal allowance. Specifically, the Ministries of National Defense , Transport, Health, Agriculture and Rural Development, Information and Communications, etc., all argue that the current allowance of 11 million VND/month for taxpayers and 4.4 million VND/month for dependents is no longer appropriate given the current economic conditions and living standards of the people.

Prices of goods and services have increased significantly in recent years, but the personal allowance has remained unchanged.

PHOTO: NHAT THINH

Simplify the personal income tax schedule.

In amending the Personal Income Tax Law, simplifying the personal income tax brackets is also necessary. The current seven brackets should be reduced to four, and the maximum tax rate should be only 30%. This is because the current corporate income tax rate is only 20%, and even lower in some preferential sectors and industries. Furthermore, businesses only pay tax after deducting all reasonable and legitimate expenses. If a business incurs losses, it can carry forward those losses for up to five years. In addition, businesses can receive a tax reduction of up to 30% during special periods such as natural disasters or epidemics.

Lawyer Tran Xoa, Director of Minh Dang Quang Law Firm

Specifically, the Ministry of National Defense proposed increasing the personal income tax deduction for taxpayers to VND 17.3 million/month and for dependents to VND 6.9 million/month. This is because the base salary at the time of the tax deduction was VND 11 million/month at the end of 2019, which was only VND 1.49 million, but by the end of 2024 it had increased to VND 2.34 million, a corresponding increase of 57.05%. The People's Committee of Ha Tinh province proposed raising the personal income tax deduction for taxpayers to VND 18 million/month and for dependents to VND 8 million/month. The province cited the 2012 Personal Income Tax Law, which stipulated a deduction of VND 9 million/month for taxpayers and VND 3.6 million/month for dependents, effective from July 2013. At that time, the base salary was VND 1.15 million. To date, the base salary has increased 2.03 times, equivalent to 2.34 million VND, so it is necessary to raise the personal income tax threshold to match the rate of increase in the base salary.

In addition, the People's Committee of Bac Giang province proposed raising the current minimum wage to better reflect the practical living conditions of each region, as the minimum wage is divided into four regions. Furthermore, the rising prices of goods and the resulting increase in daily living costs mean the current level is no longer appropriate. At the same time, Bac Giang province requested the Ministry of Finance to promptly submit to the competent authority a proposal to amend the Personal Income Tax Law (replacement) because some regulations are no longer suitable for the current developing economy, and the Land Law of 2024 has already come into effect in August 2024. The Ministry of Information and Communications proposed raising the minimum wage to align with the increase in the consumer price index, economic growth rate, and the increase in the base salary from July 1, 2024. Simultaneously, they proposed establishing a new minimum wage level to align with the government's current wage policy (based on four regions).

The personal income tax threshold for taxpayers needs to be revised immediately, as recommended by ministries, departments, and provinces/cities.

PHOTO: NGOC DUONG

Consider making the changes immediately, not waiting for a roadmap.

The reason many economic experts and National Assembly representatives are advocating for an early adjustment of the personal income tax exemption threshold, rather than waiting for the CPI to rise to 20%, is due to unusual economic fluctuations. From 2020 to 2023, the Covid-19 pandemic significantly impacted the socio-economic situation both globally and in Vietnam. Numerous essential goods experienced sharp price increases. Therefore, waiting for the CPI to rise as stipulated is unacceptable, as this is a normal occurrence. The government needs to consider changing the personal income tax exemption threshold immediately, without waiting for a comprehensive revision of the Personal Income Tax Law. A more comprehensive revision will be necessary when the Personal Income Tax Law is amended. Considering an immediate adjustment and raising the exemption threshold is appropriate given the current reality, supports the people, and fosters revenue generation.

Lawyer Nguyen Duc Nghia , Deputy Director of the Center for Supporting Small and Medium Enterprises (Ho Chi Minh City Business Association)

Many localities and ministries have also proposed adding deductions to support the costs of education, healthcare, housing, voluntary social insurance, and investments in human development. They also suggested adding deductions to support special cases such as single-parent workers or those with family members suffering from serious illnesses.

Previously, numerous voters from various provinces and cities, as well as tax and economic experts, had offered suggestions and proposals to raise the personal income tax exemption threshold because the current regulations are outdated and do not guarantee a decent standard of living for many families. According to lawyer Nguyen Duc Nghia, Deputy Director of the Center for Supporting Small and Medium Enterprises (Ho Chi Minh City Business Association), when amending the Personal Income Tax Law, the most important thing is to change the basis for calculating the personal income tax exemption threshold for taxpayers. The exemption threshold should be set at four times the regional minimum wage (Region 1 has a minimum wage of 4.969 million VND, so the exemption threshold would be nearly 20 million VND/month; Region 2 has a minimum wage of 4.41 million VND, so the exemption threshold would be approximately 17.6 million VND/month...). The annual regional minimum wage is set by the Government after listening to opinions from representatives of employees and employers, so it is quite appropriate to the general socio-economic situation, taking into account different regional factors.

CPI is the "bottleneck" of personal income tax.

This has been the opinion of many experts on personal income tax in recent years. According to current regulations, the personal income tax exemption amount can only be changed when the Consumer Price Index (CPI) increases by 20%. Lawyer Tran Xoa, Director of Minh Dang Quang Law Firm, commented that this regulation has caused frustration for taxpayers because the exemption amount usually lags behind the CPI, meaning adjustments can only be made after many years. For example, the CPI has increased by over 10% from 2020 to the present but has not yet reached 20%, so the exemption amount remains unchanged. This means that many salaried workers, despite sharp increases in the prices of goods and services, have to tighten their belts even more, forcing them to cut back on taxes.

The personal allowance deduction has become outdated compared to the socio-economic situation of recent years.

PHOTO: NHAT THINH

"In the Personal Income Tax Law, the method for determining the personal income tax exemption threshold is the most important. Even raising the threshold from 11 million VND/person/month to 18 million VND, as suggested by many provinces and cities, can only temporarily solve the problem in the first year. In subsequent years, the current threshold will become outdated and follow the old method. Therefore, the drafting committee should abandon the basis of the CPI index for adjusting the personal income tax exemption threshold," Mr. Xoa suggested, frankly stating that calculating based on the CPI is a "bottleneck." Furthermore, the CPI index includes over 700 goods and services, while taxpayers are only regularly affected by a few essential goods and services such as food, electricity, and water. Not to mention, with the government's recent management, the CPI will fluctuate at a low level, completely different from the previous period, making it even more unsuitable for calculating the personal income tax exemption threshold. Therefore, the personal income tax (PIT) should be regulated based on the regional minimum wage, following the principle of "rising tide lifts all boats," with the regional minimum wage being adjusted annually to suit the calculation of PIT. This will prevent situations where wages increase annually to compensate for inflation, while taxes also increase, thus undermining the government's wage increases.

Sharing the same view, Mr. Nguyen Ngoc Tu from the University of Business and Technology argued that the regulation of the personal income tax exemption threshold as a fixed amount, only being adjusted when the CPI changes by 20%, makes revisions very slow. Statistics over the past 15 years show that there have only been about two adjustments to the personal income tax exemption threshold, and each adjustment was slower than the actual rate, which is unsatisfactory for taxpayers. Furthermore, while people's incomes have increased over the past 10 years due to inflation, real incomes have decreased, especially during the years when the Covid-19 pandemic broke out. "From 2020 to the present, the CPI index has changed significantly, yet the old level is still being applied, which is completely unreasonable. If it were allowed to change automatically, the personal income tax exemption would have to increase to 15-16 million VND/person/month, not remain stagnant at 11 million VND. That's not to mention the recent 30% increase in the base salary, the increase in the regional minimum wage, and the increase in other indicators… Therefore, the personal income tax exemption needs to be increased to prevent excessive taxation, which would only make the tax burden on taxpayers even higher," Mr. Tu emphasized.

According to Mr. Tú, setting a fixed personal income tax exemption threshold would lead to annual revisions to the government, otherwise the current situation would revert to its outdated status. In the long term, when amending the tax law, the drafting committee should consider basing it on the regional minimum wage. "For example, there is currently a proposal to increase the personal income tax exemption threshold to 18-20 million VND/month, equivalent to 4-5 times the regional minimum wage. Annually, as this wage increases, the personal income tax exemption threshold will automatically change accordingly without needing to be calculated or submitted to relevant authorities for revision. This is a fairly suitable approach when changing the personal income tax exemption threshold. Furthermore, the biggest expenses for workers are healthcare, education, and housing. These specific expenses need to be included in the law. In some special cases, such as dependents with disabilities or elderly people with long-term, expensive illnesses, this ratio could be 70-100% of the personal income tax exemption threshold for taxpayers," Mr. Nguyen Ngoc Tú added.

This is an urgent matter and must be addressed immediately.

Proposals to raise the personal income tax exemption threshold, revise tax brackets, or address outdated regulations in the Personal Income Tax Law have been discussed for many years. In fact, since 2021, the Prime Minister has issued a document requesting the Ministry of Finance to review and propose amendments to the shortcomings of the Personal Income Tax Law. Over the past nearly four years, the Government has also repeatedly mentioned the need to study and review the inadequacies of this law. At many National Assembly meetings, delegates have pointed out many outdated regulations that are unsuitable for Vietnam's economic situation, causing frustration among taxpayers. In March 2022, to propose amendments to the inadequate regulations of the Personal Income Tax Law, in a document seeking opinions from ministries and agencies, the Ministry of Finance proposed reviewing and evaluating amendments to contents including taxpayers, taxable income, tax base, exemption threshold, tax rates, etc. However, this issue remains stalled and has not yet been submitted to the National Assembly.

Lawyer Truong Thanh Duc, General Director of ANVI Law Firm, stated frankly: "The issues and regulations of personal income tax that have been commented on by many ministries, provinces, and cities are fundamental and have been discussed extensively. This is not a new or difficult issue. Not to mention, the experiences of other countries are quite comprehensive and can be used as a reference. If the law is truly amended, it can be completed within 6 months because it's not a completely new law. The most important thing is the mindset and methodology of the law. The Ministry of Finance itself has acknowledged that there are shortcomings that must be addressed immediately. 'Since it has been agreed that the personal income tax threshold must be raised and the tax brackets changed, there is nothing left to worry about. If there are any unresolved issues, such as how much to raise the threshold, or what additional expenses can be deducted for taxpayers, the drafting agency can present 2-3 options for National Assembly representatives to consider and provide feedback,' lawyer Truong Thanh Duc analyzed." He gave an example: if there are many proposals to raise the personal income tax threshold to four or five times the regional minimum wage, the Ministry of Finance can submit both options to the Government, which will then present them to the National Assembly. Afterward, National Assembly representatives will give their opinions and vote on the option; the one chosen by the most representatives will be implemented.

"Regulations that are unknown or whose practical application is unclear require more time for review and evaluation. Meanwhile, the shortcomings of the Personal Income Tax Law have been repeatedly raised. This is what taxpayers are hoping for, and it affects the lives of millions of families, so it should be prioritized and amended sooner, not delayed and prolonged for 3-4 years. The law should be enacted or amended using the simplest and clearest approach. For example, regarding the personal income tax threshold, applying the regional minimum wage announced annually by the Government would be easier to implement and more closely reflect the realities of people's lives," lawyer Truong Thanh Duc emphasized.

Concurring, lawyer Tran Xoa argued that raising the personal income tax exemption threshold has absolutely no impact on personal income tax revenue, a fact proven by previous adjustments to the threshold in 2023 and 2020. Personal income tax has consistently increased its contribution to the state budget each year. For example, in 2011, this tax contributed approximately 5.33% to the state budget managed by the tax authorities. By 2013 (when the exemption threshold was increased from 4 million VND/person/month to 9 million VND), tax revenue continued to rise, accounting for 5.62% of total budget revenue. In 2020 (the year the exemption threshold was also adjusted upwards to 11 million VND), personal income tax revenue continued to increase, and its contribution to total budget revenue also rose to 7.62%. According to Mr. Tran Xoa, this issue has been a source of frustration for a long time, so the government needs to consider adjusting the personal income tax exemption threshold for taxpayers this year. This adjustment is reasonable, consistent with Vietnam's economic situation, and in line with public sentiment, similar to the government's ongoing policies to support businesses and individuals.

Mr. Nguyen Ngoc Tu pointed out that according to the announced roadmap, the draft Personal Income Tax Law will be submitted to the National Assembly in October 2025, passed in May 2026, and likely will only come into effect in 2027. This means that salaried workers will have to wait another two years for the personal income tax exemption threshold to change, which is too long and too slow. "This is an urgent issue, so the Ministry of Finance needs to submit the amendment to the exemption threshold soon, as there is no need to wait for the entire law to be amended according to the announced roadmap," Mr. Tu said.