Outdated personal income tax: Workers face additional hardship

Outdated tax policy, unable to keep up with inflation

According to the General Department of Taxation, in 2022, personal income tax revenue reached VND 166,733 billion, a record high. In the past 10 years, personal income tax revenue has increased 3.6 times. The number of personal income tax payers has increased continuously over the years.

Paying taxes would be a source of pride if the taxpayer had a comfortable standard of living, however, the lives of workers are always difficult. The reason is that the tax policy is outdated, not changing in time, not keeping up with inflation. Specifically, the Personal Income Tax Law has been applied since 2007, after 2 adjustments to the family deduction for taxpayers (from 4 million VND/month to 9 million VND/month and 11 million VND/month in 2020), the increase was less than 3 times. Meanwhile, the average spending per person in 2008 was about 792,000 VND/month, but by 2020 it increased to more than 2.8 million VND/month, an increase of nearly 3.6 times.

Ms. Hoang Minh Hien, an office worker in Hoan Kiem district, Hanoi, said that her total income, including allowances and additional income, is about 13 million VND/month and she has to pay personal income tax of 386,000 VND. Her family has 2 small children and has registered for family deductions for her husband. Her salary exceeds the threshold of 11 million VND, so she starts paying personal income tax. After July 1, her salary increased by about 800,000 VND. However, before she could celebrate this salary increase, she had to continue paying personal income tax on the increase.

“The family deduction of 4.4 million VND/person and the personal income tax of 11 million VND are too low compared to the current living expenses. Currently, each month, I spend 6-7 million VND/child/month on tuition, extra classes, food, diapers and milk, not to mention the cost of hospitalization when sick, which can increase by several million VND. I hope that the authorities will soon increase the taxable income and family deduction to match the increase in prices,” Ms. Hien suggested.

Associate Professor, Dr. Pham The Anh, Head of the Faculty of Economics, National Economics University, assessed that the current family deduction level is too low and not suitable to reality.

“Over the past 10 years, the cost of living, especially in big cities, people can easily feel that prices have doubled. Meanwhile, taxable income has only increased from 9 million VND to 11 million VND, an increase of 2,000,000 VND, equivalent to 20%. The increase is not commensurate with the CPI, although the CPI does not fully reflect the prices of the economy,” said Associate Professor, Dr. Pham The Anh.

Mr. The Anh said that it is necessary to increase the taxable income level and family deduction level for dependents to support low-income people enough to cover their living expenses.

“If a family in the city sends their child to a private school, the family deduction for dependents of 4.4 million VND/month is not enough, while the public school system is not enough. Those who have to pay personal income tax and have children studying in private schools are at a disadvantage because they do not receive free education from primary school levels while the cost of sending their child to a public school is not deductible when calculating taxes,” Dr. Pham The Anh frankly said.

Need to quickly amend the law

Sharing the same view, Dr. Nguyen Duc Do, Deputy Director of the Institute of Financial Economics (Academy of Finance) said that it is time to increase the family deduction level. According to Dr. Do, the economic situation has changed but the personal income tax policy has been maintained for nearly 10 years so it is outdated. However, the change and increase of the family deduction level to what level requires research and assessment of the impact on people and the economy.

“Reality shows that people’s living standards have increased with an increasing number of people paying personal income tax. Therefore, policies must change according to reality. A policy maintained for nearly 10 years is not appropriate. To ensure people’s living standards, taxable income and family deductions need to increase,” said Dr. Nguyen Duc Do.

“The income threshold for personal income tax of 11 million VND/month is applied when calculating the average income of workers of about 8 million VND. After nearly 10 years, the income has increased to 13 million VND/month, so it needs to be adjusted accordingly,” Mr. Do commented.

According to the Personal Income Tax Law, the CPI must increase by 20% to change the family deduction level. However, Associate Professor, Dr. Pham The Anh said that the regulation of the time point when the CPI changes by 20% means that it will take 5-7 years or even 10 years for the family deduction level to be changed once. The policy has a large delay, so people have to suffer.

“One of the contents that need to be amended in the Personal Income Tax Law is to flexibly adjust the taxable income level and family deduction level. This change can be made annually and can be linked to changes in the CPI. For example, after each year the consumer price index increases by 5%, the family deduction level must automatically increase by 5% to be consistent with reality,” Associate Professor, Dr. Pham The Anh proposed.

Since 2022, the National Assembly has assigned the Ministry of Finance to study increasing the family deduction level. The Ministry of Finance has sent a document asking for opinions from local ministries and agencies and reported to the National Assembly to include in the program of developing the Personal Income Tax Law.

“The National Assembly has approved the development of the Personal Income Tax Law and is expected to amend it in 2025. At this point, the basis for changing the family deduction level mainly depends on the consumer price index. When the law is amended, we will consult with ministries, branches and localities to see if there is more basis for deciding the family deduction level,” said the leader of the Tax Policy Department.

It is known that the amendment of the Personal Income Tax Law goes through two rounds of procedures including: inclusion in the National Assembly's law-making program and submission to the National Assembly for comments on the draft amended law.

According to VOV