Personal income tax ensures benefits, fairness, and taxability

Assoc.Prof.Dr. Le Xuan Truong (Academy of Finance).

After many amendments, the Ministry of Finance has decided to build a law to replace the Personal Income Tax Law. What do you think are the biggest shortcomings of the current Personal Income Tax?

Our country's personal income tax has ensured the principles of this tax: benefits, fairness and tax payment ability. The principle of benefits is that everyone in society enjoys the fruits of the country's development in terms of legal institutions, infrastructure, social welfare, security and order, culture,education , etc. At the same time, every individual with a certain income level also has the obligation to contribute a part of their income to society through paying taxes.

The principle of fairness and tax payment capacity is reflected in the fact that people with higher incomes pay more taxes, people with the same income but in more difficult circumstances pay less taxes, and people with low incomes do not have to pay taxes. However, due to the rapid socio -economic development, while the current Personal Income Tax Law has been issued for nearly 20 years, despite many amendments and supplements, it is increasingly moving away from the principles of this tax, so it is time to issue a replacement law.

Starting point of tax liability, family deductions for dependents, tax exemption for households, individual businesses... are shortcomings that have been mentioned by many businesses, people, and economic experts, so I will only mention some other issues that the Ministry of Finance is studying to amend. These are the progressive tax schedule, tax exemption for gifts, presents, inheritance; expanding the subjects of tax exemption and reduction.

What is your view on progressive tax rates?

Our country's personal income tax rate has 7 levels, from 5% to 35%, which can be said to be too many and the gap between the tax levels is too thick, leading to unreasonableness and unfairness among the population, especially those with average incomes who have to pay more taxes. There are too many tax levels, the gap between the levels is too narrow, so in reality, individuals can easily "jump tax levels" when summing up their income at the end of the year, increasing the amount of tax payable, causing the number of annual personal income tax settlements to increase unnecessarily, while the additional tax payable due to the jump in levels is not much.

Countries in the region such as Indonesia have only 5 tax rates with tax rates of 5%, 15%, 25%, 30% and 35%; the Philippines also has only 5 tax rates with tax rates of 15%, 20%, 25%, 30%, 35%... Malaysia is the country with the most personal income tax rates, but from 2024 it has reduced from 11 levels to 9 levels and is studying further reduction.

As far as I know, the Drafting Committee of the Law on Personal Income Tax (Ministry of Finance) is studying to reduce the number of tax brackets of the current tax table from 7 brackets to an appropriate level. At the same time, consider widening the income gap in the tax brackets, ensuring higher regulation for those with incomes at high tax brackets. Implementing in this direction will contribute to simplifying and reducing the number of tax brackets to facilitate tax declaration and payment, reduce the contribution of individuals with high average incomes and create conditions to attract high-quality labor.

The second point you want to mention is probably the regulation on personal income tax exemption?

According to current regulations, there are 16 types of income exempted from personal income tax, both surplus and deficit. The types of income exempted from personal income tax are income from real estate transfers between husband and wife; biological father, biological mother and biological child; adoptive father, adoptive mother and adopted child; father-in-law, mother-in-law and daughter-in-law; father-in-law, mother-in-law and son-in-law; paternal grandfather, paternal grandmother and grandchild; maternal grandfather, maternal grandmother and grandchild; siblings. Income from inheritance or gifts of real estate between the above subjects is also exempted from tax.

The tax exemption subjects are too broad and need to be narrowed down, such as real estate between siblings that are not exempted from tax, or inheritance or gifts between siblings. Other subjects when transferring, inheriting or giving gifts should also be regulated, exempting tax for real estate values at a certain level. For example, tax exemption for real estate values of 3-4 billion VND, and above this level, tax must be paid according to the progressive tax rate to ensure fairness, avoid tax loss and avoid exploitation. Because in reality, parents-in-law and sons-in-law; parents-in-law and daughters-in-law; adoptive parents and adopted children transacting with each other real estate worth tens, even hundreds of billions of VND do not have to pay any tax when the contract states that it is a gift or transfer, while in fact they are buying and selling with each other.

So what are the missing tax exemptions, sir?

It is necessary to expand the tax exemption for individuals with income from dividends of members of agricultural cooperatives, farmers participating in "large fields"; income paid by voluntary pension funds, supplementary pension insurance funds; income from the transfer of emission reduction certificates, the first transfer of carbon credits; income from green bond interest...

Currently, farmers with income from shares of agricultural cooperatives must pay personal income tax according to the type of income from capital investment, farmers with income from participating in "large-scale fields" must pay 5% personal income tax.

Exempting personal income tax for farmers is also in line with the spirit of Resolution 19-NQ/TW (dated June 16, 2022) on agriculture, farmers, and rural areas and Resolution 20-NQ/TW (dated June 16, 2022) on continuing to innovate, develop and improve the efficiency of the collective economy in the new period.

According to current regulations, only pensions paid by the Social Insurance Fund are exempt from personal income tax; pensions paid monthly by the voluntary pension fund are exempt from personal income tax. Thus, it is unreasonable for individuals to have income from withdrawing a "lump sum" of pensions and not be exempt from tax. In fact, pensions are the accumulated money of individuals when they work, when they reach retirement age, they receive it back monthly to ensure their living, but there are also many cases where, for some reason (such as settling abroad with relatives), employees need to withdraw social insurance and pension insurance from the voluntary pension fund at once.

According to you, is it necessary to add more subjects exempted from and reduced from personal income tax?

Resolution 57-NQ/TW (dated December 22, 2024) on breakthroughs in science and technology development, innovation and national digital transformation affirms that science and technology development, innovation and digital transformation are decisive factors in the development of countries, and are prerequisites and the best opportunities for our country to develop richly and powerfully in the new era - the era of national development.

The Resolution also sets a target that by 2030, Vietnam will be among the top 3 ASEAN countries, the top 50 countries in the world in terms of digital competitiveness and e-Government Development Index; the top 3 ASEAN countries in artificial intelligence research and development, and the center for developing a number of digital technology industries and sectors in which Vietnam has advantages. Therefore, it is necessary to study and supplement regulations on personal income tax exemption and reduction for income from salaries and wages of individuals who are high-tech human resources working at enterprises and projects in the fields of information technology, agriculture, agricultural processing, high-tech application projects, and high-tech product manufacturing projects that are encouraged to develop.

Source: https://baodautu.vn/thue-thu-nhap-ca-nhan-bao-dam-loi-ich-cong-bang-kha-nang-nop-thue-d304227.html