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| Assoc.Prof.Dr. Le Xuan Truong (Academy of Finance, Ministry of Finance ) |
The Ministry of Finance has begun soliciting comments on the Draft Law on Personal Income Tax to replace the current law, in which the family deduction is one of the most concerned contents. Could you share more about this issue?
The nature of family deductions is to determine the starting point for tax liability so that after paying taxes, the remaining income must ensure that the taxpayer and his family can live at the average level of society or above. With this nature, most countries do not impose personal income tax on people with average income or below through family deductions, at the same time, personal income tax must ensure fairness both horizontally and vertically.
Horizontal equity is when individuals with the same income pay the same taxes; no taxes are levied on low-income earners in society; low taxes are levied on middle-income earners and progressive taxes are levied on higher-income earners.
Vertical equity means that whoever has more dependents pays less tax, even those with higher incomes still pay less tax, in principle, whoever has a higher ability to pay taxes must have the obligation to contribute more to the state budget.
Thus, Vietnam's personal income tax has approached international practice, reflecting the true nature of this tax. In 2020, the National Assembly Standing Committee issued a resolution to increase the reduction level.
Family deduction for taxpayers from 9 million VND/month to 11 million VND/month and each dependent from 3.6 million VND/month to 4.4 million VND/month.
Many taxpayers and economists believe that the current family deduction is “not enough to cover expenses”. What is your opinion?
Let me explain more clearly, the current deduction is that a single person with an income of 11 million VND/month (132 million VND/year) does not have to pay tax, only the amount exceeding this deduction is taxed according to the progressive tax schedule.
For example, if a single individual has an income of 16 million VND/month, after family deductions, he/she only has to pay 250,000 VND/month in taxes, with a tax rate of 5%, so the after-tax income is 15.75 million VND/month. In case there is 1 dependent, if the income is 15.4 million VND/month (184.8 million VND/year), then he/she does not have to pay tax.
The spending needs of each person and each family are different, while the State's policies apply to the vast majority of people.
I have studied personal income tax in many countries around the world as well as in the region. The family deduction compared to GDP per capita in Indonesia is 0.7 times; Thailand is 0.83 times; Malaysia is 0.15 times; Singapore is from 0.33 to 0.4 times; UK, Germany, USA are 0.3; 0.22 and 0.17 times respectively. As for Vietnam, the family deduction is 1.1 times, much higher than the above countries.
Of course, social conditions, social welfare, health care, education, per capita income, real income of workers... of different countries are not the same, so it is difficult to compare family deduction levels.
Taxpayers' desire to increase deductions to reduce the amount of tax payable is legitimate, but a fair tax system where the proportion of personal income tax and value added tax to the state budget must be high, will have the opportunity to reduce other taxes, the Government will have resources to take care of low-income people, vulnerable groups, exempt tuition fees from kindergarten to high school...
At a recent conference on personal income tax, many opinions suggested increasing the deduction level for taxpayers and dependents. These are just personal opinions and the proposed levels are still very emotional.
So what factors should be considered when determining the family deduction level, sir?
Since the deduction was increased to 11 million VND/month (2020), socio-economic conditions have changed a lot, so I agree with increasing the family deduction. But proposing a specific number right away is very emotional, without considering all factors.
According to regulations, when the Consumer Price Index (CPI) increases by 20% or more, the family deduction level is adjusted. From 2020 onwards, the CPI has increased by about 20% and it is necessary to add inflation of this year and 2026 so that the new deduction level does not become outdated soon.
However, deductions must take into account many factors, such as increasing regional minimum wages, increasing basic wages, GDP/person, people's income... and must be balanced with policies on exemption, reduction, and extension of taxes, fees, charges, and other sources of revenue.
According to you, when should the family deduction level be adjusted?
The draft Personal Income Tax Law to replace the current law is in its early stages. According to the expected roadmap, the National Assembly will pass it in 2026 and the new Law will take effect in 2027.
Vietnam's current family deduction level is higher than other countries in the region and the world average, but the current economic and social conditions are much different from 2020, so in my opinion, the Government needs to submit to the National Assembly Standing Committee a resolution to increase the deduction level as soon as possible and it can be applied from this year. As for how much the deduction level should be increased, it must be carefully calculated, not only to ensure increased income for taxpayers through reduced obligations to the state budget, but also to take into account the state budget revenue estimate.
In this revision of the personal income tax, it should be considered that the Government can adjust the annual family deduction level. Accordingly, the family deduction level can be adjusted up/down or kept the same, depending on factors such as inflation, salary increase; at the same time, it is necessary to increase the deduction level for the disabled, sick, elderly... as many countries in the world have done.
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