Raising family deduction level: Resolving difficulties for workers, boosting aggregate demand

VTV.vn - The proposal to increase family deductions and shorten the tax schedule is good news for workers, but flexibility and budget balance need to be carefully considered.

Improved disposable income: A boost for domestic consumption

Sharing with reporters, Ms. Nguyen Thu Ha, an administrative employee at a private company in Hanoi, said that she currently has an income of 28 million VND/month and is the economic pillar raising two children. This is a representative image of millions of middle-class workers who are under great pressure from escalating living costs. According to current regulations, the total family deduction for herself and her two children is 19.8 million VND. When deducting compulsory insurance, Ms. Ha's taxable income is about 5.96 million VND/month. This level causes her to pay personal income tax of nearly 400,000 VND/month.

The personal income tax deduction has officially increased to VND15.5 million/month for taxpayers and VND6.2 million/month for dependents, opening up great expectations for improving disposable income, especially for the middle class and workers with young children.

"With the rising cost of living, tuition, and rent, that tax is a real burden for salaried workers. The family deduction has remained the same since 2020, no longer keeping up with actual costs. I hope the policy will be adjusted soon," Ms. Ha shared.

Faced with the pressure of escalating costs, the Ministry of Finance has proposed a plan to increase the family deduction level, accordingly, the deduction level for taxpayers is 15.5 million VND/month and 6.2 million VND/month for each dependent.

According to preliminary calculations, if this option is applied (15.5 million VND + 2×6.2 million VND = 27.9 million VND total deduction), employees raising two children like Ms. Ha will not have to pay personal income tax (negative taxable income), helping to reduce about 400,000 VND in tax each month, equivalent to 5-6 million VND/year.

Economic and market experts assess that raising the family deduction level is a necessary step, reflecting the flexibility of tax policy in the context of the Consumer Price Index (CPI) accumulated from 2020 to the end of 2025 expected to increase by about 21.24% (according to the General Statistics Office). The Ministry of Finance also emphasized that the adjustment is based on the growth rate of per capita income and per capita GDP, both of which increased by over 40% during this period.

Speaking to reporters, Dr. Mac Quoc Anh - Vice President and General Secretary of the Hanoi Association of Small and Medium Enterprises (Hanoisme) assessed that amending the Law on Personal Income Tax (PIT) is an urgent requirement, not only to ease difficulties for workers but also to create a boost for aggregate demand. This change is considered one of the most effective macro solutions to directly improve people's disposable income, especially the middle class and low-income workers.

Many economic experts also commented that the Draft Law on Personal Income Tax (amended) is humane, with a dual impact: it both solves the problem of wages not keeping up with prices; and stimulates domestic consumption. When disposable income increases, people will tend to spend more on goods and services, creating a sustainable source of demand, indirectly supporting domestic production and business enterprises.

As disposable income increases, people tend to spend more on goods and services...

Regarding this issue, Deputy Minister of Finance Cao Anh Tuan also emphasized that the main goal is to reduce the tax burden on people, in line with economic fluctuations and ensuring the principles of fairness and equality.

Budget and financial balance problems

Another notable point is the proposal to empower the Government to automatically adjust the family deduction when the Consumer Price Index (CPI) exceeds a certain threshold. The aim is to help the tax respond more quickly to actual price fluctuations. However, the National Assembly's Economic and Financial Committee has expressed caution. The Committee recommends stipulating a specific deduction level in the law to ensure stability and transparency.

In addition, it can be seen that reducing the burden on people means that the state budget will have reduced revenue. This is a macro-financial balance problem that needs to be carefully calculated. According to the Ministry of Finance, if choosing the option of increasing the deduction level of 15.5 million and 6.2 million/month, the revenue reduction could be up to 21,000 billion VND.

Reducing the burden on people means that the state budget will have less revenue.

Economists note that ensuring financial stability is a decisive factor in implementing the policy. However, the drafting agency believes that this reduction in revenue can be partly offset by increased revenue from consumption taxes when people's disposable income increases and stimulates aggregate demand.

Economist Tran Manh Hung commented that although the reduction in revenue of VND21,000 billion is significant, if the new tax policy creates a strong boost for domestic consumption and production, value-added tax (VAT) and corporate income tax (CIT) revenues will increase again. This is a strategic trade-off, accepting a reduction in direct taxes to stimulate indirect taxes and economic growth.

Despite the debates on how to manage and balance the budget, this amendment to the Personal Income Tax Law is clearly a major reform step. Increasing the deduction level and expanding the tax bracket can open up the "golden circle" of middle income - a group of people who are under high cost pressure but whose tax rate is gradually approaching.

Shorten the tax schedule, reduce "step by step"

Along with increasing the deduction level, the Draft Law also proposes to shorten the progressive tax schedule from 7 levels to 5 levels and widen the gap in taxable income between levels.

The reduction of tax brackets is strongly supported by experts because it prevents average workers from being hit with a sudden increase in tax rates when their income increases slightly – a phenomenon often called “stepping”. This adjustment not only ensures fairness but also encourages highly skilled workers to increase their income. However, transparency in how the new tax brackets are determined is still needed and to ensure that there are no “strategic” income shifting loopholes.

Source: https://vtv.vn/nang-muc-giam-tru-gia-canh-go-kho-cho-nguoi-lao-dong-cu-hich-cho-tong-cau-100251014222114995.htm