Editor's note:

The current personal income tax has revealed many shortcomings. That is, the family deduction level is no longer suitable for the continuous fluctuations of the general price level, there are too many tax rates, and it is not calculated correctly and sufficiently for business households (especially online sales)...

However, the Personal Income Tax Law will not be amended until 2026. This amendment requires further improvements to create more fairness for taxpayers.

The series of articles on Personal Income Tax Inadequacies by VietNamNet adds more perspectives to this issue that is always of public concern.

How much income is subject to tax?

In essence, the regulation on deductions before calculating tax ensures the principle that individuals need to have a certain level of income to meet the essential needs of life such as: food, accommodation, travel, study, medical treatment... Therefore, income above this threshold must pay tax.

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

Pork - photo by Nguyen Hue.jpg
The cost of living always weighs heavily on people. Photo: Nguyen Hue

For individuals with income under 120 million VND/month, according to current regulations, the amount of personal income tax payable compared to income is less than 20%.

Specifically: individuals with income of 40 million VND/month, the personal income tax payable is 6.56%/income.

Income of 60 million VND/month, the personal income tax payable is 11.74%/income.

Income of 80 million VND/month, the personal income tax payable is 15.55%/income.

Income of 100 million VND/month, the personal income tax payable is 18.44%/income.

For individuals with high income above 120 million VND, the personal income tax payable is at a rate higher than 20% of income.

Specifically: an individual with an income of 120 million VND/month, the personal income tax payable is 21.2% of income; an income of 150 million VND/month, the personal income tax payable is 23.96% of income... This calculation assumes that the individual has 1 dependent. In case the individual has more than 1 dependent, the tax payable is also correspondingly lower.

The Ministry of Finance calculated like that, but recently, many opinions have commented that the family deduction level is still low. In addition, there are also opinions that it is necessary to regulate the family deduction level according to the regional minimum wage, the family deduction level in urban areas and large cities needs to be higher than in rural and mountainous areas due to higher costs...

In fact, many families are having to "struggle for every penny" for living expenses while still having to pay personal income tax, especially in big cities.

Like the family of Ms. Nguyen Thi Huong in Hanoi, these days, her husband and she are starting to have to pay personal income tax. The monthly income of the couple is about 36 million VND. With this income, after deducting the family circumstances for their two children, Ms. Huong and her husband still have to pay personal income tax. Although the amount of personal income tax to pay is not much, it still makes her feel resentful.

“The family’s monthly expenses are always in short supply after having to pay 11 million VND in installments to buy an apartment; 3 million VND to support elderly parents every month; electricity, water, and living expenses for the couple and two children.

The children’s family deductions are only enough to cover their monthly education expenses. Meanwhile, their parents are not eligible for deductions because they have a pension of more than 2 million VND/month. I find it really unfair to have to pay taxes when their income is not enough to cover expenses,” said Ms. Huong.

Medical and educational expenses should be deductible.

Citing experience from other countries, the Ministry of Finance said: Most personal income tax laws of other countries have provisions on family deductions in different forms and ways.

In terms of classification, the personal income tax deductions applied by countries are divided into three groups.

One is general deductions for individual taxpayers. The application of general deductions in many countries also aims to exclude low-income earners from paying personal income tax. Thereby, reducing the burden on tax authorities in tax management and settlement, especially when the amount of tax collected from those with income below the threshold often accounts for a small proportion while the cost of tax collection management for these subjects is often not small. Because the living needs of individual taxpayers are very different (different consumption needs, different consumption characteristics of each region...), the experience of other countries also shows that the level of deduction is always an issue with many different opinions.

Second are deductions for dependents, such as deductions for children, spouses, parents, etc. These are deductions applied to people that the taxpayer must support (dependents). However, the scope of dependents in each country is also different and has different criteria. The deduction level prescribed for dependents is often lower than the deduction level for individual taxpayers.

Some countries have restrictions on the number of dependents that can be deducted (for example, Thailand, Indonesia, Malaysia, etc.), but many countries do not (for example, the US and the UK). Some countries do not have separate deductions for dependents and for individual taxpayers, but have a common deduction (for example, China, etc.).

Vietnam is applying the above two deductions. In addition, some countries also establish specific deductions (for example, deductions for medical expenses, education, etc.). These are deductions that taxpayers are entitled to when meeting certain criteria, such as spending on items that the state needs to encourage (for example, for medical expenses, education, etc.).

Accordingly, the scope of these deductions is also very diverse. Some countries allow deductions for social insurance and health insurance contributions... to encourage people to participate in these services. Some countries allow deductions for children's education costs, some countries allow deductions for mortgage interest payments (to encourage people to own a home) or charitable contributions.

Looking at this aspect, lawyer Truong Thanh Duc, Director of ANVI Law Firm, commented: It is necessary to amend the Personal Income Tax Law to follow the correct principles, because the nature of tax is revenue minus expenses and income must be taxed. Therefore, the expenses of the taxpayer and his family members such as children's education, medical treatment, house purchase, house construction, house rental, etc. must be specifically regulated in the law on how to deduct before calculating personal income tax.

Allowing deductions when calculating personal income tax if there are invoices is also something that a tax expert has proposed for many years. Mr. Chung Thanh Tien, from the Accounting Association of Understanding Correctly - Doing Correctly, once analyzed: The tax authority can keep the deduction level the same but allow a percentage of actual expenses to be deducted if there are documents with the taxpayer. At that time, the person declaring taxes and the tax authority will know which party is evading taxes.

This is also the driving force for people to get invoices - an issue that the tax industry is promoting in many forms, including "invoice lottery". Businesses will not be able to hide their revenue. According to this person, allowing buyers to deduct taxes when having documents at a certain level will contribute to bringing benefits to the budget and "reduce the negotiation and division of lump-sum taxes, which has been a problem in the past.

Next article: Personal income tax problems, people still have to wait for law amendments

In reality, salaried workers with income exceeding 11 million VND/month have to pay personal income tax if they have no dependents, while self-employed people with high incomes almost do not have to pay this tax.