Amending the Personal Income Tax Law: Tax collection must be equal, avoiding backwardness

Currently, the draft amendment to the Law on Personal Income Tax (PIT) of the Ministry of Finance is seeking comments from the authorities. The draft has received great attention from the public, notably the payment of PIT, because it directly affects people's "wallets".

Progressive tax reduced to 5 levels

After 17 years of implementation, the 2007 Personal Income Tax Law has revealed many limitations and shortcomings. Among them, the progressive tax schedule is considered to have too many levels, with too many gaps, becoming a burden for taxpayers.

Specifically, the progressive tax schedule applied to income from salaries and wages includes 7 tax brackets. For bracket 1, taxable income up to 5 million VND/month is subject to a tax rate of 5%; for bracket 7, taxable income over 80 million VND/month is subject to a tax rate of 35%. With such a large tax gap, if taxable income changes by only 5 million VND/month, taxpayers can "fall" into a higher tax bracket.

From the above shortcomings, the Ministry of Finance proposed to reduce the tax rate to 5 levels: 5%, 15%, 25%, 30%, 35%, with 2 different options for monthly taxable income. In both options, the monthly taxable income at level 1 is raised to 10 million VND.

However, in option 1, the highest tax bracket stipulates a monthly taxable income of over VND80 million; while in option 2, this bracket is higher, at VND100 million/month. In terms of tax brackets, the two options proposed by the Ministry of Finance have both reduced the current 7 brackets to 5 brackets.

Buying and selling at Thai Binh market, Cau Ong Lanh ward, HCMC. Photo: HOANG HUNG

Regarding the adjustment of the family deduction level, the Ministry of Finance is currently seeking comments on the dossier of the Resolution of the National Assembly Standing Committee adjusting the family deduction level of personal income tax. In which, the Ministry of Finance proposed 2 options.

Option 1, the deduction for the taxpayer is 13.3 million VND/month (159.6 million VND/year); the deduction for each dependent is 5.3 million VND.

Option 2, the deduction for taxpayers is 15.5 million VND/month (186 million VND/year); the deduction for dependents is 6.2 million VND/month; while the current family deduction is 11 million VND/month (132 million VND/year), the deduction for dependents is 4.4 million VND/month, applied from January 1, 2020.

Avoid creating “tax traps” for taxpayers

According to Dr. Do Thien Anh Tuan, Fulbright School of Public Policy and Management, raising the family deduction level is natural, but the bigger story that needs to be discussed is raising the income thresholds in tax brackets. For example, bracket 1 currently stipulates a taxable income of less than VND5 million/month, now it needs to be raised to VND12 million. Similarly, the following brackets also need to be raised accordingly, based on the inflation rate over the past 17 years.

Regarding the depreciation rate, Dr. Do Thien Anh Tuan cited the depreciation rate from 2009 to present as 215%, or 2.15 times. Accordingly, the level of 5 million VND (level 1 - the lowest tax level) from 2009 to present must be equivalent to nearly 11 million VND.

At the highest tax bracket, if in 2009 it was determined to be 80 million VND/month, then according to inflation, it must be 172 million VND now. Therefore, the plan to keep the taxable income at the highest bracket at 80 million VND is outdated, because 80 million VND today is only equivalent to 37 million VND in 2009.

In option 2, the regulation of the highest tax bracket applied to taxable income of 100 million VND/month, Dr. Do Thien Anh Tuan still thinks is very outdated. According to this expert, this is only the income level of a middle-level manager, and cannot be said to be the highest-income earners in today's society.

Meanwhile, many experts also analyzed that the gap between tax brackets is unreasonable. Dr. Nguyen Ngoc Tu, lecturer at Hanoi University of Business and Technology, said that the current problem is not the highest tax rate of 35%. Because many countries in the world, especially developed countries, apply high tax rates such as Sweden (56.6%); Denmark (55.4%); Netherlands (52%); Australia, Belgium, UK (50%); or Japan (50%). However, the gap between tax brackets of these countries is quite large. Meanwhile, in Vietnam, the tax rate table is too dense with short tax steps, causing pressure on taxpayers, especially those with low incomes.

According to Ms. Nguyen Thi Cuc, President of the Vietnam Tax Consulting Association, it is necessary to study the combination of increasing the family deduction level with widening the gap between tax brackets. At the same time, research on tax reduction for some areas needs to encourage and attract high-quality human resources to ensure that people with different incomes are all reduced in tax regulation, ensuring horizontal and vertical equality of personal income tax.

Deputy Minister of Finance Cao Anh Tuan said that in the coming time, the ministry will continue to research and synthesize opinions from ministries, branches, localities, organizations and individuals to propose appropriate policies and report to competent authorities for consideration and decision. The draft Law on Personal Income Tax will be submitted to the National Assembly at the session at the end of this year.

Personal income tax is the third largest source of revenue in the tax system, after value added tax and corporate income tax. Regarding family deductions, the draft law proposes that the Government regulate family deductions to ensure flexibility and proactive adjustment to suit the reality and requirements of the country's socio-economic development in each period.

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Source: https://www.sggp.org.vn/sua-luat-thue-thu-nhap-ca-nhan-thu-thue-phai-binh-dang-tranh-lac-hau-post805326.html