Proposal to assign the Government to regulate family deduction levels

The Ministry of Finance proposed to study the option of assigning the Government to regulate the family deduction level for calculating personal income tax to ensure flexibility and suitability to reality.

In the submission to the Government regarding the construction of the new Personal Income Tax Law project, the Ministry of Finance said that regulations on family deductions need to be reviewed and amended to suit new conditions.

Accordingly, this agency proposed to study the option of assigning the Government to regulate the family deduction level. This is to ensure flexibility, proactive adjustment, and suitability with the reality and requirements of socio -economic development in each period.

Currently, the family deduction level is stipulated in the Law on Personal Income Tax. In case the consumer price index (CPI) fluctuates by more than 20% compared to the time the Law takes effect or the time of the most recent adjustment, the Government shall submit to the National Assembly Standing Committee to adjust the family deduction level in accordance with price fluctuations to apply to the next tax period.

The Ministry of Finance in this submission also proposed to study other specific deductions. These are non-taxable amounts that taxpayers are entitled to when meeting certain criteria. For example, some countries apply them to medical expenses, education, health insurance or interest on mortgage loans.

Presently family deduction for individual taxpayers is 11 million VND and deducted for each dependent is 4.4 million, maintained from July 2020. Individuals are deducted insurance, family deductions, allowances, subsidies... the remaining amount is the income used to calculate personal income tax. However, this deduction is considered inappropriate in calculating personal income tax, when spending and living are increasingly expensive.

According to the Ministry of Finance, the specific family deduction level needs to be carefully studied and calculated to ensure it is consistent with fluctuations in prices and people's living standards. However, an "excessively high" deduction level will obscure the role of personal income tax policy in ensuring social equity and income regulation.

"This will invisibly bring the personal income tax policy back to the tax policy for high-income earners as in the previous period," the Ministry of Finance noted.

Previously, responding to the proposal on family deduction levels, the Ministry of Finance repeatedly affirmed that it was still not possible to adjust when the CPI fluctuated less than 20% compared to the most recent change.

According to the General Statistics Office, Vietnam's average monthly income per capita in 2023 (at current prices) is 4.96 million and the highest income group (the richest 50% of the population - group 5) has an average income of 10.86 million VND per month per person.

The current deduction for taxpayers, according to the Ministry of Finance, is 11 million VND, which is 2.2 times higher than the average income per capita, much higher than the common level applied by other countries from 0.5 to 1 times, and also higher than the average income of the 20% highest income group. The deduction for dependents, according to this agency, is also close to the current average income per capita.

Personal income tax includes tax from salaried employees (mainly) and income tax from business individuals. This is one of the three pillar taxes, contributing significantly to the state budget, along with corporate income tax and value added tax.

In addition to family deductions, the Ministry of Finance also proposed to adjust the progressive tax schedule for residents with income from salaries and wages. This is to match changes in income and macroeconomic indicators. At the same time, they also reviewed and adjusted tax rates for income from capital transfers and real estate.

Source