Personal income tax in Vietnam: Finance Ministry plans to raise

The Ministry of Finance’s (MOF) plan to raise the taxation threshold to VND11 million from VND9 million and raise the family circumstance deduction for independent family members to VND4.4 million from VND3.6 million has been criticized.

March 07, 2020 | 08:24

According to Pham Dinh Thi, director of the MOF’s Tax Policy Department, the family circumstance deductions are defined in accordance with the amended PIT (personal income tax) Law.

personal income tax in vietnam finance ministry plans to raise

The CPI at the end of 2019 had increased by 23 percent compared with July 1, 2013

The PIT law stipulates that when the CPI increases or decreases by 20 percent or more compared with the time when the law takes effect, the government will submit to the National Assembly’s Standing Committee a plan to adjust the family circumstance deductions.

The CPI at the end of 2019 had increased by 23 percent compared with July 1, 2013. The family circumstance deduction level for tax payers, or the new taxation threshold should be VND11 million (VND9 million x 123% = VND11.088 million).

At present, an inpidual who has monthly income of VND15 million and one independent family member, has to pay VND120,000 in PIT. Once the new regulation is applied, he won’t have to pay PIT.

The inpiduals with the monthly income of VND20 million and one independent family member, now have to pay VND490,000, or 2.5 percent of income. Once the new regulation is applied, he will have to pay VND230,000 only, which means the reduction of VND260,000, or 48 percent.

If the proposed adjustments get approval, the state budget would lose VND10 trillion a year from PIT collections.

The MOF’s plan has not been applauded by experts.

Lawyer Truong Thanh Duc, president of Basico Law Firm, commented that there is no information about why MOF has set the taxation threshold at VND11 million, not VND12 million, VND14 million or VND15 million, and why MOF has not considered the base salary when setting family circumstance reduction levels.

According to Duc, the regulation that the PIT adjustments will be made only when the CPI increases by more than 20 percent is unreasonable. He said the adjustments need to be made regularly, even when the CPI increases by only 2-3 percent.

Duc went on to say that the tax rates are too high (there are seven tax levels, from 5 percent to 35 percent) and they need to be amended.

Lawyer Tran Xoa from Minh Dang Quang Law Firm also commented that the proposed taxation adjustments are unreasonable.

GDP per capita is $3,000 according to the new calculation method, or VND5.8 million. The taxation threshold should be VND14.5 million to be sure that the deduction is 2.5 times the income.

Personal income tax too high for low-income earners?

The General Department of Taxation (GDT) in late 2018 released a document instructing taxation agencies to regularly check if they have sufficient information about the income of individuals who have irregular income such as taxi moto drivers, drivers of small self-modified trucks, construction work contractors and owners of unlicensed street shops.Ba and his wife, who run a banh mi vending shop in district 7, HCM City, said with the price of VND20,000 for one sandwich, they earn VND10-12 million a month. If they have to pay tax, they will not have money to feed themselves and fund the studies of the two children at secondary and high schools.

Under current regulations, individuals with revenue of VND100 million a year or more will have to pay some type of tax, including PIT.

Analysts say that the VND100 million taxation threshold is too low compared with the current spending level and living standards of the people.

At a meeting with the HCM City Taxation Agency, Do Ngoc Thinh, a Grab taxi driver, said in order to have revenue of VND100 million a year, drivers have to work 10-12 hours a day instead of eight hours like other workers. They have to work under the rain and sun and face high risks to earn money to pay for rent, feed their families and fund children’s studies.