The public has raised concerns over proposed amendments to the Law on Personal Income Tax by the Ministry of Finance, particularly when it comes to personal and family deductions and the "partially progressive tariff". Some taxpayers say the amendments are reasonable, others are hotly opposed to the changes. Viet Nam News reporters Bich Huong and Mai Linh spoke to a number of experts about the issue.
Do Thi Thin, vice chairwoman of the Viet Nam Tax Consultants' Association
In my opinion, the increase in the personal tax rate from the current VND4 million ($190) to VND6 million ($286) in 2014 and for each of the taxpayer's dependants from VND1.6 million ($77) to VND2.4 million ($115) is reasonable.
|Do Thi Thin
Although many people worry that personal and family deductions would be outdated when applied in 2014, I believe they will be appropriate. The income tax rate should not be adjusted every time prices fluctuate.
The Law on Personal Income Tax (PIT) is completely different from the high-income tax ordinance. The income tax law has to be far broader so that more people pay, which is their civic duty.
At the moment, those earning a monthly income of less than VND500,000 ($24) or VND6 million ($288) per year are regarded as dependants who receive support from the taxpaying public. I think VND6 million ($288) is too little. The minimum tax threshold should be increased, and only regular earnings should be taken into account.
In addition, the highest tax rate of 35 per cent should not be removed from the partially progressive tariff. The tax rate of 5 per cent to 35 per cent, which is currently applied, is appropriate to Viet Nam. The tax rate of 35 per cent is not high compared to some countries such as Thailand (37 per cent) or China (45 per cent).
Looking at the partially progressive tariff, the seventh tax bracket (VND80 million) is only 16 times higher than that of the first bracket (VND5 million). The figure is low compared to most of countries in the region (China 53 times, Philippine 50 times, Malaysia 40 times).
So, instead of removing the highest tax rate of 35 per cent from the partially progressive tariff, the distance between each tax group should be widened. I suggest the distance between the highest tax bracket to the starting bracket should be increased to 25 to 30 times.
If it were kept the same, people for example with a monthly income of VND160 million ($7,600) must pay VND44.8 million ($2,130) in tax. It is too much. The current partially progressive tariff would be unfair to people on a high income.
The partially progressive tariff should be fair to all taxpayers.
In Viet Nam, the number of people paying PIT (personal income tax) makes up just a small percentage of the labour force. In 2011, only 30 per cent of people and business households were taxed. Most of them were in the first tax bracket of the partially progressive tariff.
The PIT policy still affects just a small group of people in the country and its contribution to the gross domestic product (GDP) is low, just about 2 per cent.
Ly Phuong Duyen, Academy of Finance's Department of Tax and Customs, Ha Noi
Proposed family deductions may be considered reasonable in the light of the National Tax Reform Strategy 2011-20, which aims to increase the number of tax payers in the country.
I think the law on personal income tax needs to be amended. The tax rate of 5 per cent for the first tax bracket should be lower – (in Malaysia, there are seven tax brackets the lowest tax rate is one per cent and the highest is 26 per cent) – or deductions should be increased.
The National Assembly should impose the ceiling level for family deductions, for example five to eight times higher than the minimum wage. The NA should also empower the finance ministry to decide and adjust deductions based on real situations.
One of the most important features of PIT is that it takes into account personal conditions, such as food requirements, living costs and travelling costs.
So deductions are made prior to a tax assessment.
However, existing family deductions still fail to ensure equality for all tax payers.
Although the Law on Personal Income Tax does not allow for deductions for compulsory insurance, including social and health insurance, the Finance Ministry has passed circulars regulating deductions for people participating in these kinds of insurance programmes.
However, household businesses that buy life insurance products from private insurance companies are not eligible for these deductions. Thus, the regulations cater only to office employees.
Pham Thi Thu Ha, deputy general director of PetroVietnam
In my opinion, proposed changes to the Law on Personal Income Tax demonstrate some progress. Under current regulations, the taxable income threshold is VND4 million ($190) and the deduction for each dependent is VND1.6 million ($77). During the implementation of the law over the last three years, the regulations revealed shortcomings because they could not keep pace with changes in the real situation, especially rising prices.
However, the proposed changes are not convincing. The untaxed income rate should not be a fixed sum of money because the currency value is always changing. I think that every year, the Government should announce a level of income that is considered enough to ensure fair average living conditions in the country. Taxable income should be based on indicators, such as GDP or average income. This will make the law more flexible and practical.
Removing the highest tax rate of 35 per cent imposed on those earning more than VND80 million is a way to motivate people to earn more. Some people think that the more they earn, the more tax they have to pay. Those earning VND300-400 million per month will lose 35 per cent in tax. So, they think they should work less to earn less and pay less tax.
Lawyer Tran Duc Phuong, HCM City
I agree that personal deductions and dependent deductions are too low. They do not reflect the real situation and do not take into account inflation. Moreover, the amendment is expected to come into force in 2014, which is too far away.
|Tran Duc Phuong
According to the finance ministry's proposal, family deductions are based on fluctuations in the Consumer Price Index (CPI), but the CPI is based on about 500 categories of goods, reflecting the general socio-economic situation. So, it cannot reflect the changes in the price of all goods or services. Food prices in real life are often higher than the statistics suggest.
The CPI in Ha Noi is different from that in HCM City but the difference is much clearer when compared to other provinces or rural areas.
If the family deduction does not reflect the real situation, people in urban areas, especially in Ha Noi and HCM City, will be affected most. However, the proposal has yet to approach this group of taxpayers and does not support them, for example with deductions in tax for the cost of education, healthcare or for those with terminal illnesses.
Those who can provide VAT invoices for the cost of education, healthcare, etc. should be able to get a tax discount. This would make the law more flexible, fairer and encourage tax payers to invest in social welfare services.
For example, if one spends VND2 million ($95) on education and can provide an invoice for the tax man, if he or she is in the first tax bracket (5 per cent), they should get a tax refund of VND100,000 ($4.7). Meanwhile, the State would get VND200,000 ($9.5) from valued added tax from the education service and possibly corporate income tax. So, the taxpayer is happy as he or she pays less tax, while the State budget gets more. — VNS
The Law on Personal Income Tax was approved by the National Assembly on October 21, 2007, and came into force on January 1, 2009.
– Personal deduction for taxpayer: VND4 million ($190) per month
– Deduction for each dependent of taxpayer: VND1.6 million ($77) per month Currently-applied partially progressive tariff:
According to statistics from the Ministry of Finance, personal income tax collected in 2009 made up 3.4 per cent of State revenue, 4.7 per cent in 2010 and 5.5 per cent in 2011. To date, more than 10 million people nationwide have tax codes.
Proposed amendments were publicised from March and are due to come into force in 2014
Proposed family deductions:
– Personal deduction for taxpayer: VND6 million ($286) per month
– Deduction for each dependent of taxpayer: VND2.4 million ($115) per month