Series of recommendations from ministries, branches and localities

During the process of drafting the Law on Personal Income Tax (replacement), the Ministry of Finance received many opinions from ministries, branches and localities proposing to increase the family deduction level to suit the current socio -economic conditions and living standards of the people.

The family deduction level prescribed in Article 19 of the draft Law on Personal Income Tax (replacement) is 11 million VND/month for taxpayers, 4.4 million VND/month for each dependent, has been applied from July 1, 2020 and applied from the 2020 tax period.

The Government's electronic information portal synthesizes opinions from readers that the regulations on family deductions are outdated, and at the same time, the adjustment conditions (CPI changes by 20%) are not consistent with the development of consumer prices, especially in big cities.

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Many ministries, branches and localities have proposed increasing the family deduction level to suit the current socio-economic conditions and living standards of the people. Photo: Nam Khanh

Therefore, it is proposed that the Ministry of Finance study a method to allow additional deductions (based on the review of records provided by taxpayers), in addition to the general family deduction applicable to all taxpayers. For example, hospital bills, medicine bills, tuition bills, repair bills, replacement bills of high-value assets such as houses, means of transport, production tools, etc.

Along with that, divide the family deduction levels by region (similar to the 4 regions applied to the regional minimum wage).

On the other hand, it is proposed that the Government announce and adjust the family deduction level annually or every two years, instead of basing it on the CPI fluctuation. This will ensure a flexible tax policy that changes in accordance with the fluctuations of social life.

With the current deduction for the taxpayer himself of 11 million VND/month and for each dependent of 4.4 million VND/month, a person with income from salary or wages of 17 million VND/month (if having 1 dependent) or 22 million VND/month (if having 2 dependents) after deducting social insurance, health insurance, unemployment insurance... does not have to pay personal income tax.

The Ministry of Information and Communications also proposed to increase the family deduction level compared to the current level to match the increase in the consumer price index, economic growth rate and the increase in the basic salary from July 1, 2024; to build a family deduction level by region to match the current salary policy (Decree No. 74/2024 regulating the minimum wage according to 4 regions).

The Ministry of National Defense proposed to increase the family deduction for taxpayers from 11 million VND/month to 17.3 million VND/month, for each dependent from 4.4 million VND/month to 6.9 million VND/month. Because the basic salary at the time of promulgation of the regulation on family deduction was 1.49 million VND/month, by December 2024 it had increased to 2.34 million VND/month (an increase of 57.05%).

The People's Committees of Ninh Thuan, Son La,... provinces proposed to add deductions to support costs of education, health care, housing and investments for human development. There should be more policies to encourage investment in education by providing more tax deductions for study costs and professional training courses, upgrading standards.

At the same time, additional deductions should be added to support special cases (employees who are single parents or have relatives with serious illnesses... should be subject to higher deductions).

The Ministry of Finance unanimously proposed to reduce the burden on taxpayers.

In response to the opinions of ministries, branches and localities, in the recent Government Submission to develop a new draft Law on Personal Income Tax (replacement), the Ministry of Finance acknowledged that "the current family deduction level applied from 2020 to present needs to be reviewed and re-evaluated to propose amendments and supplements in accordance with new conditions".

The Ministry of Finance proposed to study and adjust the family deduction level for individual taxpayers and dependents to match the developments of the CPI index and macroeconomic indicators, development trends as well as international practices, contributing to reducing the tax burden for taxpayers.

The 2023 population living standards survey report of the General Statistics Office (Ministry of Planning and Investment) shows that the average income per capita/month in Vietnam in 2023 (at current prices) is 4.96 million VND and the group of households with the highest income (the group of the richest 20% of the population) has an average income of 10.86 million VND/month/person. Based on this data, the Ministry of Finance emphasized that the current deduction for taxpayers (11 million VND/month) is more than 2.21 times the average income per capita (much higher than the common level applied by other countries, for example, this ratio in 2023 in Malaysia is 0.16 times, Indonesia is 0.68 times, China is 0.67 times), equivalent to the average income of the group of the richest 20% of the population.

However, careful calculation is needed to avoid the case where the "too high" deduction level will bring the personal income tax policy back to the "tax policy for high-income earners" as in the previous period.

In addition, the Ministry of Finance also proposed to supplement the scope of determining deductible charitable and humanitarian contributions; study and supplement other specific deductions; and assign the Government to provide detailed regulations and guidance on implementation to suit emerging practices.

Referring to international experience, countries often divide family deductions into 3 groups: General deductions for individual taxpayers; Deductions for dependents, such as deductions for children, spouses, parents;... Deductions of a specific nature (for example, deductions for medical expenses, education...).

Regarding specific deductions, some countries allow deductions for social insurance and health insurance contributions... to encourage people to participate in these services; some countries allow deductions for medical expenses and children's education expenses; some countries allow deductions for interest on home loans...

“In order to promote the role and significance of personal income tax policy in regulating income but taking into account the conditions and circumstances of taxpayers, it is necessary to review and research additional specific deductions before calculating tax for individual taxpayers.

However, the scope of deductible expenses and the level of deduction for expenses need to be considered and calculated appropriately to achieve the set goals but also not reduce the role of personal income tax policy as a tool to save income and redistribute income in the economy," the Ministry of Finance noted.

How to register and calculate family deductions for dependents Taxpayers can refer to the instructions below on how to register and calculate family deductions for dependents when calculating personal income tax.