(kontumtv.vn) – According to economic experts, the current personal income tax deduction for dependents is no longer appropriate to the actual living standards of the people.

Photo caption
Tax officials in Yen Bai City guide citizens through the tax payment procedure. Photo: Pham Hau/TTXVN

Although the tax deduction has increased, inflation and rising living costs are causing difficulties for many families. Therefore, timely adjustments are needed to alleviate the tax burden on workers, especially since the average income of the people is still low compared to the current deduction level.

Personal income tax comprises taxes from salaried employees (the primary source) and self-employed individuals. It is one of the three mainstay taxes of the budget, alongside corporate income tax and value-added tax (VAT).

Since 2009, when the Personal Income Tax Law came into effect, the initial family allowance deduction for taxpayers was 4 million VND/month, which was raised to 11 million VND/month (132 million VND/year) in 2020 and 4.4 million VND/dependent. With the current deduction levels, individuals earning 17 million VND/month (with one dependent) or 22 million VND/month (with two dependents), after deducting social insurance, health insurance, unemployment insurance, etc., are currently not required to pay personal income tax.

Ms. Nguyen Thi Thu and her husband ( Hanoi ) are both salaried employees with two young children under 18 years old, all of whom are of school age. Their combined monthly income is over 37 million VND. The two children are currently being claimed as dependents under their father's income because Mr. Thu earns over 20 million VND. Therefore, currently only Ms. Thu's income is subject to personal income tax.

According to Ms. Thu, with the current personal income tax and family allowance deductions, her family is losing about 5 million VND in taxes each year. Although this is not a large sum, it is still very valuable given her family's circumstances.

"The tuition fees for our two children, along with the ever-increasing living expenses due to inflation, have created a significant financial burden for my husband and me, even though our income isn't exactly low," Thu shared.

It's not just Ms. Thu; many families living in major cities like Hanoi and Ho Chi Minh City face similar pressure. Everyday expenses such as education, food, and other fees leave almost no room for maneuver in their income. This doesn't even include unforeseen expenses like illness, funerals, weddings, and other celebrations. This leaves families with virtually no room for saving. For young families, saving income for major purchases like housing is almost impossible.

According to the 2023 Household Living Standards Survey Report published by the General Statistics Office (Ministry of Planning and Investment), the average monthly income per capita in Vietnam (at current prices) is 4.96 million VND, and the highest-income household group (the group comprising the richest 20% of the population – group 5) has an average income of 10.86 million VND/month/person. Therefore, the current tax deduction for taxpayers (11 million VND/month) is more than 2.21 times the average monthly income per capita, equivalent to the average income of the richest 20% of the population.

The Personal Income Tax Law stipulates that when the CPI fluctuates by more than 20% compared to the time the law came into effect or the time of the most recent adjustment of the personal allowance, the Government shall submit to the Standing Committee of the National Assembly a proposal to adjust the CPI accordingly to the price fluctuations for application to the next tax period. However, monitoring from 2020 to the present shows that the CPI has not fluctuated to the 20% threshold.

Economists argue that the current personal income tax rate is no longer appropriate to reality and needs to be adjusted to ensure a decent standard of living for the people.

According to economist Associate Professor Dinh Trong Thinh, the tax deduction amount should be based on people's actual living expenses, and real costs such as illness, medical care, and raising and educating children should be taken into account.

Expert Dinh Trong Thinh argues that the regulation requiring a 20% cumulative CPI increase before adjusting the personal allowance deduction is outdated and fails to keep pace with the changing economy and cost of living. Since 2020, prices have been steadily rising, yet the deduction amount remains fixed, which is illogical. Therefore, according to Dinh Trong Thinh, the personal allowance deduction is too low and needs to be increased. In major cities like Hanoi and Ho Chi Minh City, the deduction should be around 16-18 million VND per month or more.

Previously, in its submission to the Government in November 2024 proposing the drafting of the Personal Income Tax Law (replacement), the Ministry of Finance assessed that the current personal allowance, which has been applied since 2020, needs to be re-evaluated to propose amendments and additions to suit the new conditions.

According to the Ministry of Finance, the specific amount of personal allowance deductions needs to be carefully calculated, taking into account price fluctuations, the increase in people's living standards, and forecasts for the future.

The Ministry of Finance has proposed studying and adjusting the progressive tax rate schedule for income from salaries and wages of resident individuals. Vietnam could consider reducing the number of tax brackets in the current tax schedule from 7 to a more appropriate level; and consider widening the income gap between tax brackets…

Mr. Truong Ba Tuan, Deputy Director of the Tax Administration Department (Ministry of Finance), stated that the Consumer Price Index (CPI) may fluctuate significantly in 2025, and the Ministry of Finance will propose adjusting the personal allowance without amending the Personal Income Tax Law. This issue is expected to be considered at the October session, and the Ministry of Finance is currently reviewing and planning to amend the Law in 2025.

According to the Ministry of Finance, in 2024, the estimated revenue from personal income tax for the whole year was 189,000 billion VND, an increase of 20% compared to the same period last year (157,000 billion VND).

Thuy Duong (VNA)