What are the answers of The Ministry of Finance in Vietnam regarding the reasons for not increasing personal deductions?

What are the answers of The Ministry of Finance in Vietnam regarding the reasons for not increasing personal deductions?

The Ministry of Finance of Vietnam has received the petitions of voters from the provinces: Binh Dinh, Ha Giang, Thai Nguyen, Tra Vinh, Tuyen Quang, and Tay Ninh as forwarded by the Committee for People's Aspirations in Official Dispatch 499/BDN dated June 14, 2024, with the content of the petition as follows:

Voters from these provinces requested consideration for adjusting the personal deductions for taxpayers and dependents and adjusting the progressive tax scale to ensure it aligns with reality, especially after salary increases effective from July 1, 2024.

The Ministry of Finance issued Official Dispatch 8760/BTC-CST in 2024 to respond as follows:

According to the current Personal Income Tax Law 2007, individuals can deduct social insurance, health insurance, unemployment insurance, and professional liability insurance premiums for certain professions required to participate in compulsory insurance, deduct the family circumstance deduction, contributions to charity, humanitarian funds, and allowances and subsidies as prescribed... the remaining amount is the income used as the basis for calculating personal income tax.

The Personal Income Tax Law 2007 (effective from January 1, 2009) stipulates the deduction for taxpayers as VND 4 million/month (VND 48 million/year); the deduction for each dependent is VND 1.6 million/month.

The Law on Amendments to Personal Income Tax Law 2012 (effective from July 1, 2013) stipulates the deduction for taxpayers as VND 9 million/month (VND 108 million/year); the deduction for each dependent is VND 3.6 million/month. It also includes provisions: In the case of the consumer price index (CPI) increasing by over 20% compared to the time when the law became effective or the most recent time the family circumstance deduction was adjusted, the Government of Vietnam shall submit to the Standing Committee of the National Assembly an adjustment of the personal deductions suitable to the price fluctuations to apply for the next tax period.

On June 2, 2020, the Standing Committee of the National Assembly issued Resolution 954/2020/UBTVQH14 adjusting the personal deductions for personal income tax (applied from the tax period of 2020), increasing the deduction for taxpayers to VND 11 million/month (VND 132 million/year); the deduction for each dependent is VND 4.4 million/month. Adjusting and raising the personal deductions for personal income tax has contributed to reducing the tax obligation for taxpayers; the payable tax will be reduced for all subjects currently paying personal income tax.

The regulations concerning deductions before calculating taxes ensure the principle that individuals must have a certain level of income to meet essential living needs such as food, shelter, travel, education, and healthcare... therefore, only after exceeding this threshold must income tax be paid.

Implementing the deductions also aims to exclude those with low income from the personal income tax obligation. The personal deductions for taxpayers and their dependents under the laws on personal income tax is a specific amount according to the common standards of society, not distinguishing between high-income and low-income individuals with varying consumption needs. Individuals facing difficulties due to natural disasters, fires, accidents, or serious illnesses are already subject to tax reduction according to the Personal Income Tax Law 2007. The specific personal deductions must be carefully researched and calculated, ensuring it is higher than the average GDP per capita, regional minimum wage, and the average per capita expenditure in a given period.

According to the 2023 Living Standards Survey Report by the General Statistics Office (Ministry of Planning and Investment), the average per capita income per month in Vietnam in 2023 (at current prices) is VND 4.96 million, and the highest-income households (the group comprising the wealthiest 20% of the population - group 5) have an average income of VND 10.86 million/month/person.

The current deduction for taxpayers (VND 11 million/month) is more than 2.2 times the average per capita income (considerably higher than the common level applied by other countries of 0.5 to 1 time); it is also higher than the average income of the top 20% highest-income population. The deduction for dependents is also close to the current average per capita income.

With the current deduction for taxpayers being VND 11 million/month and for each dependent being VND 4.4 million/month, individuals with salaries and wages of VND 17 million/month (if having one dependent) or VND 22 million/month (if having two dependents) after deducting social insurance, health insurance, unemployment insurance contributions, etc., are not yet subject to personal income tax.

Clause 4, Article 1 of the Law on Amendments to Personal Income Tax Law 2012 stipulates:

In case the Consumer Price Index (CPI) changes over 20% compared to the effective time of the Law or the latest time point of adjusting the personal deduction, the Government submits to the Standing committee of the National Assembly for adjustment of the personal deduction specified in this clause in conformity with changes of price in order to apply for the next tax term.

According to data from the General Statistics Office, the CPI in 2020 increased by 3.23%, in 2021 by 1.84%, in 2022 by 3.15%, and in 2023 by 3.25%. Thus, the CPI fluctuations have not reached 20% since the last adjustment of the family circumstance deduction (in 2020); therefore, according to the current Personal Income Tax Law 2007, it is not yet possible to adjust the personal deductions.

What are the answers of The Ministry of Finance in Vietnam regarding the reasons for not increasing personal deductions? (Image from Internet)

What are the cases of personal deduction in Vietnam?

According to Article 5 of the Personal Income Tax Law 2007, taxpayers who face difficulties caused by natural disasters, fires, accidents or severe diseases and affecting their tax payment ability may be considered for tax reduction corresponding to the extent of damage they suffer from but not exceeding payable tax amounts.

Who is required to pay PIT in Vietnam?

Personal income taxpayers include residents who earn taxable incomes specified in Article 3 of the Personal Income Tax Law 2007 inside and outside the Vietnamese territory and non-residents who earn taxable incomes specified in Article 3 of the Personal Income Tax Law 2007 inside the Vietnamese territory.

- Resident means a person who satisfies one of the following conditions:

+ Being present in Vietnam for 183 days or more in a calendar year or 12 consecutive months counting from the first date of their presence in Vietnam;

+ Having a place of habitual residence in Vietnam, which is a registered place of permanent residence or a rented house for dwelling in Vietnam under a term rent contract.

- Non-resident means a person who does not satisfy any of the conditions specified in Clause 2 of this Article.