Draft Law on Personal Income Tax (replacement): Family deduction should be flexible

The draft Law on Personal Income Tax (replacement) that the Ministry of Finance is submitting to ministries and branches for comments to amend and is expected to submit to the National Assembly in 2026 will amend and supplement 31/35 articles. In particular, amending the content on taxable income from salaries and wages of resident individuals (Article 11); on family deductions for taxpayers and dependents (Article 19)... is of interest to the majority of salaried workers.

In the Government's submission Ministry of Finance The amendment also emphasizes “Requirement to study and adjust family deduction levels for taxpayers and dependents to suit the new context...” to reduce the burden on taxpayers.

The richest 20% are paying personal income tax

The time for collecting opinions from ministries, branches and organizations on the draft amendment and replacement of the Personal Income Tax Law is getting shorter. The viewpoint of this amendment is to "add provisions that are problematic and no longer suitable to promptly resolve problems arising in practice, ensuring the legitimate and legal rights and interests of individuals...".

The family deduction level needs to be adjusted early and annually to reduce the burden on taxpayers. Photo: Nhu Y

Among the things that are considered by the majority of taxpayers and many experts to be "no longer appropriate" but have not been amended are: Family deductions for taxpayers and dependents, progressive tax schedules, taxable income from real estate transfers...

The family deduction level directly affects many people with incomes from the tax threshold to high income levels. This will be adjusted, the level of adjustment depends largely on the comments of ministries, branches and experts. The content of the policy and adjustment solutions in the report of the Ministry of Finance is specifically stated as: "Research to adjust the regulations on family deduction levels to suit the changes in the living standards of the population, price index and macroeconomic indicators in the recent period"; "Research to adjust the regulations on family deduction levels for individual taxpayers and dependents"...

Ms. Huyen Nguyen, Deputy General Director of EY Vietnam Consulting Joint Stock Company.

In fact, the personal income tax deduction (applied from the 2020 tax period) for taxpayers is 11 million VND/month; for each dependent is 4.4 million VND/month, which is very low.

Since its inception, the Personal Income Tax Law has undergone various adjustments in different stages. From January 1, 2009, the deduction for taxpayers is 4 million VND/month; the deduction for each dependent is 1.6 million VND/month.

From July 1, 2013, the deduction for taxpayers is 9 million VND/month; the deduction for each dependent is 3.6 million VND/month. On June 2, 2020, thanks to the National Assembly's resolution on adjusting the family deduction (applied from the 2020 tax period), the deduction for taxpayers was increased to 11 million VND/month; the deduction for each dependent is 4.4 million VND/month.

This family deduction is considered to contribute to reducing the obligation of taxpayers, the amount of tax payable will be reduced for all subjects paying personal income tax. In addition, the tax debt burden is also reduced somewhat. However, in a short time after that, the income level of people with income from salary and wages at the threshold of 17 million VND/month (if having 1 dependent) also quickly became outdated. Many opinions have proposed to soon increase the family deduction level to reduce the burden on taxpayers.

According to the 2023 population living standards survey by the General Statistics Office, the average monthly income per capita in Vietnam in 2023 is 4.96 million VND. The group of households with the highest income (the richest 20% of the population) has an average income of 10.86 million VND/month/person. This means that the deduction for taxpayers of 11 million VND/month is equivalent to the average income of the group of the richest 20% of the population in the country.

The paradox is that, on many forums, the opinions of many experts, even National Assembly delegates, believe that with the simple income of an ordinary civil servant or public employee, they must "go without food all their lives" to be able to buy a house, not to mention food, clothing, and normal living expenses.

Which basis is appropriate?

Salaried workers who are burdened with personal income tax are demanding an increase in the family deduction level, but how much is appropriate? Should we just "anchor" the CPI index to calculate the family deduction level when the law stipulates that we must wait for the CPI to increase by more than 20% before adjusting the family deduction level?

Responding to PV Tien Phong newspaper as an expert, Ms. Huyen Nguyen, Deputy General Director in charge of Global Reporting & Compliance Services, EY Vietnam Consulting Joint Stock Company said: The family deduction level depends on many factors such as necessary expenses for basic living needs, inflation index... Meanwhile, CPI is build based on a basket of goods (CPI list for the period 2020-2025 includes 754 items) and weights showing the proportion of spending on each group of goods compared to total spending of the population. Although CPI is one of the parameters to assess the increase in people's living costs, the basket of goods and weights to calculate CPI are only updated every 5 years, so CPI may not promptly reflect price fluctuations over the years.

“If we continue to rely on the CPI, the level of CPI fluctuation needed to consider adjusting family deductions should be reduced, instead of the current 20%,” said Ms. Huyen Nguyen.

Regarding the progressive tax rate applied to income from salaries and wages, Ms. Huyen Nguyen cited the example of tax rates in some countries: “Compared to many countries with average income per capita similar to Vietnam, Vietnam's tax rate is currently too high. The Philippines and Indonesia have the highest tax rate of 35%, but it is applied to income of 5 billion Indonesian Rupiah/year (667 million VND/month) or 8 million Pesos/year (288 million VND/month). The general corporate income tax rate in our country has been reduced from 25% (applied since 2009) to 20% (since 2016). Therefore, the highest tax rate of 35% is maintained for people with taxable income of 80 million VND or more (applied since 2009) and should be considered and adjusted down”.

Until now, the family deduction level has been rigidly regulated: only changing, adjusting when CPI increases by more than 20%. This is too rigid even when there are many negative fluctuations affecting taxpayers, for example, the impact of Typhoon Yagi can be enough to propose tax reduction for personal income taxpayers, reducing their burden without basing on CPI.

According to a tax expert, the family deduction level after careful calculation should be adjusted annually, or at least every 2-3 years, instead of waiting until the CPI increases by more than 20% as currently regulated. "To avoid spending a lot of time discussing the adjustment of family deduction level, the new Personal Income Tax Law can include a provision that the family deduction level will be automatically changed according to the CPI increase rate or the base salary increase rate or regional minimum wage increase rate," the expert said.

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