Family deduction level: Need to adapt to price fluctuations

The Ministry of Finance has just proposed adjusting the family deduction level according to two options. Option 1, for taxpayers it is 13.3 million VND/month, for each dependent it is 5.3 million VND/month. Option 2, for taxpayers it is 15.5 million VND/month, for each dependent it is 6.2 million VND/month. The new deduction level will apply from the 2026 tax period. According to experts, adjusting the family deduction level is necessary and needs to ensure fairness and adapt to price fluctuations.

Taxpayers transact at the "one-stop" department of Tax Base 7 ( Hanoi City Tax). *Photo: Quang Thai*

Two options for adjustment

According to current regulations, the family deduction for taxpayers is 11 million VND/month and each dependent is 4.4 million VND/month. In the draft Resolution of the National Assembly Standing Committee on adjusting the family deduction level, which is being consulted by the Ministry of Finance before reporting to the Government for approval by the National Assembly , the Ministry of Finance proposes two options for adjusting the deduction level for consideration by competent authorities.

Option 1, adjusted according to the growth rate of the consumer price index (CPI). The cumulative CPI from 2020 to 2025 increased by about 21.24%. Accordingly, the Ministry of Finance proposed the deduction for the taxpayer himself from 11 million VND/month to about 13.3 million VND/month. The deduction for each dependent increased from 4.4 million VND/month to 5.3 million VND/month. This option is in accordance with the current Law on Personal Income Tax, closely following the basis of applying deductions according to essential living needs and the inflation rate from the time of adjusting the most recent family deduction level (2020).

Option 2, based on the growth rate of per capita income and per capita Gross Domestic Product (GDP) in 2025 compared to 2020, the Ministry of Finance proposes the deduction for the taxpayer himself from 11 million VND/month to 15.5 million VND/month. The deduction for each dependent increases from 4.4 million VND/month to about 6.2 million VND/month.

According to the Ministry of Finance's calculations, state budget revenue will decrease by about VND12,000 billion under option 1 and VND21,000 billion under option 2. However, state budget revenue can be partially offset by increased revenue from other consumption taxes due to increased disposable income of taxpayers.

In the draft Law on Personal Income Tax (replacement) which is also soliciting opinions, the Ministry of Finance has proposed two options to amend the tax schedule, in the direction of reducing the number of levels and widening the income gap. Option 1, taxable income is divided into 5 levels: Taxable income up to 10 million VND/month applies a tax rate of 5%; income from over 10 to 30 million VND is subject to a tax rate of 15%; over 30 to 50 million VND is 25%; over 50 to 80 million VND is 30%; over 80 million VND is subject to a tax rate of 35%.

Option 2, still 5 tax brackets but adjusting the income gap to widen at higher brackets. Specifically, taxable income up to 10 million VND/month is subject to a tax rate of 5%; income over 10 to 30 million VND is subject to a tax rate of 15%; over 30 to 60 million VND is subject to a rate of 25%; over 60 to 100 million VND is 30%; over 100 million VND is subject to a tax rate of 35%.

Consumers shop at Winmart supermarket (Cau Giay ward). *Photo: Nguyen Quang*

Set up automatic adjustment mechanism

Associate Professor Dr. Ngo Tri Long - economic expert, assessed: The proposal of two options to adjust the family deduction level in personal income tax is a timely and necessary move. Of the two options above, option 2 may reduce the budget revenue more but is the right choice if evaluated from the perspective of social equity. "Raising the family deduction level does not greatly affect the main source of income but mainly helps reduce the burden on ordinary workers, the force that is most affected by the high cost of living," said Mr. Ngo Tri Long.

Sharing the same view, Dr. Nguyen Thi Cam Giang (Faculty of Finance, Banking Academy) said that option 2 is more reasonable and scientifically based. CPI mainly measures fluctuations in prices of goods and services, but does not comprehensively reflect the improvement in income, especially in the context of increasing living standards and payment capacity of people in large cities. On the contrary, the indicators on income and GDP per capita are more comprehensive, closely following the actual development of the economy as well as the financial capacity of households. Therefore, the proposed family deduction of VND 15.5 million/person/month for taxpayers and VND 6.2 million/person/month for dependents is more suitable for the cost of living in large cities.

Associate Professor Dr. Nguyen Thuong Lang, senior lecturer, Institute of International Trade and Economics (National Economics University) suggested that family deductions should be made according to the actual living standards of each region, because basic expenses in rural and urban areas are different.

Regarding the progressive tax schedule applied to taxable income, expert Nguyen Thi Cam Giang said that shortening the progressive tax schedule from 7 to 5 levels as in the two proposed options of the draft is a step in the right direction, in line with international trends to simplify policies and reduce the pressure of declaration. However, both options still have limitations. Specifically, the gap between the lower levels (under 30 million VND/month) is still too narrow, while the minimum living standard, especially in large cities, is increasing rapidly. The difference in tax rates from level 2 to level 3 (from 15% to 25%) is quite large, which can cause a feeling of unreasonable tax pressure for the middle-income group.

On that basis, the tax schedule should be designed in the direction of continuing to maintain 5 levels but widening the income range at lower levels. For example, level 1 is up to 15 million VND/month, level 2 is over 15 million VND to 40 million VND/month, thereby reducing tax obligations for the majority of workers; at the same time, maintaining or widening the range of high levels, only applying a maximum tax rate of 35% to very high income, in order to avoid eliminating the motivation to accumulate and attract highly qualified human resources.

In addition, it is necessary to maintain a mechanism for periodically adjusting the tax schedule based on average income, regional minimum wages and fluctuations in actual living costs, while considering expanding reasonable deductions such as education, healthcare and dependent care expenses to accurately reflect the actual spending burden of taxpayers.

Source: https://hanoimoi.vn/muc-giam-tru-gia-canh-can-thich-ung-voi-bien-dong-gia-ca-710449.html