The level of 100 million/month subject to 35% tax is 'disproportionate', it should be raised to 300 million

Why is the tax rate still 35%?

The Ministry of Finance has just asked for opinions from Government members on the draft of a number of contents to receive and explain the draft Law on Personal Income Tax (amended) to report to the National Assembly Standing Committee.

Explaining issues on the progressive tax schedule, the Ministry of Finance said it has reviewed and adjusted the progressive tax schedule (applied to income from salaries and wages) in the draft law.

Accordingly, the drafting agency has adjusted two tax rates of the tax schedule, reducing the 15% tax rate (at level 2) to 10% and the 25% tax rate (at level 3) to 20%, specifically as follows:

The latest plan on adjusting tax rates and tax brackets of the Ministry of Finance. Screenshot

With this new tax schedule, according to the Ministry of Finance, all individuals currently paying taxes at the current levels will have their tax obligations reduced compared to the current tax schedule. In addition, the new tax schedule also overcomes the sudden increase at some levels, ensuring a more reasonable tax schedule.

Notably, in the tax table, for the highest tax rate of 35% at level 5, the Ministry of Finance believes that this is a reasonable proposal. This is an average tax rate, not too high nor too low compared to other countries in the world and in the ASEAN region (Thailand, Indonesia, and the Philippines also stipulate a tax rate at the highest tax level of 35%; China is 45%).

In addition, according to the Ministry of Finance, if the rate is adjusted from 35% to 30%, it will be considered a tax reduction policy for the rich.

Speaking to VietNamNet reporter , Ms. Le Thi Thuy, CEO of Bach Khoa Consulting Services Co., Ltd., said that the adjustment to reduce tax rates at levels 2 and 3 shows that the comments have been listened to. However, it is regrettable that the tax rate of 35% is still maintained, although she and many experts have repeatedly analyzed and recommended that this rate is too high and should be abolished.

Dr. Nguyen Ngoc Tu, a lecturer at the Hanoi University of Business and Technology, has also repeatedly suggested that the 35% tax rate should be removed because it is "too high and inappropriate." He is concerned that the high tax rate will make it difficult for Vietnam to compete in attracting high-quality human resources from abroad.

According to the expert, currently in the region, only Thailand, the Philippines and Indonesia apply a tax rate of 35%, but all apply to very high income groups. In Indonesia, the income threshold subject to a 35% tax rate is equivalent to 8 billion VND/year; in Thailand, it is 2.6-3 billion VND/year and in the Philippines, it is about 4 billion VND/year. This means that taxpayers must have an income of 330-660 million VND/month to be subject to this tax rate.

Experts say it is necessary to widen the gap between tax rates or increase the tax threshold to avoid "jumping rates" and reduce pressure on wage earners. Photo: NK

Meanwhile, in Vietnam, taxable income of over 100 million VND/month is subject to a rate of 35%. He also cited that Singapore has the highest tax rate of only 24% to attract talent and this tax rate only applies to income of over 1 million SGD/year (about 20.5 billion VND).

From that, Dr. Nguyen Ngoc Tu said that if the tax rate of 35% for salaried workers is to be maintained, it is necessary to strongly adjust the taxable income threshold at this level. The taxable income level of over 80 million VND/month has been applied for 17 years, so raising it to 100 million VND/month is not appropriate.

According to Mr. Tu, in case the 35% tax rate is not removed, the taxable income threshold should be raised to about 300 million VND/month to approach regional practice.

Proposal to widen income gap step by step

According to the latest draft law, the income gap for each tax bracket is currently at 10, 20, 30, and 40 million VND. Ms. Le Thi Thuy proposed that this gap should be widened so that income can ensure the lives of salaried workers, and tax payment should be more harmonious between the interests of workers and personal income tax obligations.

Specifically, she proposed that level 1 should remain at 10 million VND/month, but level 2 should be expanded from 10-40 million VND and level 3 from 40-80 million VND.

Sharing the same view, Dr. Nguyen Ngoc Tu commented that the first three tax brackets in the new draft fall into the middle-income group but the tax rate increases sharply when each bracket jumps to 10%; at the same time, the income gap between the brackets is too narrow, causing the pressure to "jump" to increase.

Therefore, Mr. Tu proposed widening the income gap between tax levels in the following direction: level 1 is over 20 million VND/month; level 2 is from 20-70 million VND; level 3 is from 70-120 million VND; level 4 is from 120-180 million VND; level 5 is over 180 million VND/month.

Reducing tax rates and widening the gap between levels, according to Mr. Tu, will help taxpayers avoid sudden increases in their obligations and demonstrate the spirit of "giving people leniency". When income levels are too close, the rapid jump in levels causes the tax rate to increase sharply, creating great pressure on wage earners.

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