However, the current regulations on family deduction of the Personal Income Tax Law 2009, which was amended in 2012 and supplemented in 2014, are not suitable for the current socio-economic situation and growth rate.
Inadequacies in taxation
Personal Income Tax (PIT) is one of two taxes that make the largest contribution to the annual state budget revenue with VND 110,000 bln, accounting for 10 percent of the total balance of the state budget in 2021. This is just after the two pillar taxes of the economy, which are Corporate Income Tax (CIT) and Value-Added Tax (VAT). Although wage earners account for 50 percent of the labor force and contribute up to 70 percent of revenue, tax policy for them has been slow to adjust after more than ten years of applying the PIT Law. This is currently very inadequate.
The current income of the cadres, civil servants, and public employees' working salary plus additional incomes have all exceeded the threshold of exemption or reduction. However, in recent years, Vietnam's inflation rate has always tended to increase, and the following year is usually higher than the previous year. Moreover, every year the State and enterprises raise the level of income paid for those who are working. Therefore, the income level of over VND 11 million per month is not too large for most people working in agencies, units, or enterprises.
Currently, the spending and living needs of people are bigger than when the PIT Law was promulgated. Because, the life of modern people increases many sources of spending, on the other hand, the prices of goods and services are also increasing. Typically, essential goods and services such as dining, housing, transportation, health care, and education have all increased in price compared to the number of previous years. Moreover, these are indispensable goods and services for each individual.
In order to make up for the spending deficit, each person has to work harder, so the income is also more than before. However, the family deduction of tax law does not increase with economic growth and inflation. This is easy to see when the percentage of people subject to income tax exceeds the threshold of VND 11 million per month or VND 132 million per year. However, it is precise because there is no adjustment of the family deduction level in accordance with the current actual income of the people, which has contributed to promoting PIT evasion.
Tax in other countries
Experiencing the regulations on conditions for family deduction in some countries shows that many countries now have distinctions in the characteristics of taxpayers when setting up the general deduction level. For example, the elderly and disabled people are exempt at a higher rate than ordinary people in England, Malaysia, and Singapore, or married people also get a higher deduction than single people such as in the USA and the Philippines.
Some countries do not provide a deduction for taxpayers, but in the tax table, the tax rate is 0 percent for taxable income below a certain threshold. In addition, there are countries that both stipulate a 0 percent tax rate and provide a deduction for taxpayers such as in Thailand and Malaysia and consider this as a measure to support low-income people. There are countries that stipulate an income threshold when determining the amount of a deduction, as the taxpayer is entitled, and the higher the income the lower the personal deduction such as in the USA and U.K.
Regarding the deduction for dependents, there are countries that provide the same personal deduction for taxpayers as dependents as in the U.K. and the USA. Many countries control the number of dependents to be deducted as in Thailand, Indonesia, and Malaysia, but there are also countries that do not, such as USA and U.K. There are also countries that do not specifically prescribe deductions for dependents and for individual taxpayers but act on a general level such as China. Therefore, it can be seen that countries stipulate the level of the deduction for family circumstances and dependents in accordance with their economic and social conditions, thus contributing to the collection and payment and tax management, reducing the tax burden.
This shows that the deduction for family circumstances and the deduction for dependents according to the provisions of the 2009 PIT Law in Vietnam is no longer consistent with the current income and socio-economic development. Both of these levels are too outdated when built six years ago, while inflation has increased sharply, the Consumer Price Index (CPI) has exceeded 20 percent, and prices and living costs are getting more and more expensive.
There is an opinion that, if the PIT Law is not amended, talents will no longer be motivated, reducing national competitiveness. The current level of family deduction should be considered and evaluated based on a combination of factors such as the annual increase in CPI, the actual level of inflation in the economy, and the growth of the gross national product, GDP and activities of the underground economic sector. The reduction of family circumstances needs to be adjusted annually to suit the actual situation of socio-economic development.
For those who do not work in agencies, units, and enterprises, the calculation of personal income tax is always difficult and complicated. Hence it is also necessary to develop solutions to manage and collect taxes from these entities. Only in this way can we ensure fairness in the calculation of PIT among taxpayers and increase revenue for the state budget.