Is it suitable to be flexible in reducing family expenses?
Mr. Minh - a freelancer in Hanoi - shared: "The current family deduction for dependents is only 4.4 million VND/month, while I have to raise three children in high school and elderly parents. However, my income is only enough for basic living expenses, plus the taxes I have to pay, I feel very difficult. If the family deduction is increased, I will be able to reduce some of my financial burden and focus more on work".
Mr. Minh's story is not uncommon. While large cities such as Hanoi and Ho Chi Minh City have a high standard of living, in other areas such as Bac Ninh, Lao Cai, etc., the family deduction does not keep up with the increase in living expenses, causing inequality in tax policy implementation.
In an interview with Lao Dong, Associate Professor, Dr. Phan Huu Nghi - Deputy Director of the Institute of Banking and Finance, National Economics University - said that adjusting the family deduction level is necessary in the context of rapidly changing income and living expenses, however, the proposed 13.3-15.5 million VND still does not fully reflect the actual income and living expenses.
Mr. Nghi also added that Vietnam is a country with an average income, so it is not possible to expand personal income tax to the entire population, but it is necessary to focus on taxing the group with a fairly good average income or more. Therefore, determining the deduction level is not only based on per capita income or living expenses, but it is necessary to consider an important factor, which is the most common income level that the majority of people working for salary today have.
Mr. Nguyen Quang Huy - CEO of the Faculty of Finance - Banking, Nguyen Trai University - commented: "The current deduction level is outdated. The actual costs of education, healthcare, housing, energy... in urban areas all increased more strongly than the CPI and the 13.3-15.5 million VND level has not kept up with this growth rate".
Mr. Huy emphasized the need to link the adjustment of the deduction level with the consumer price index (CPI) and national trungential income, while allowing annual automatic adjustments, instead of waiting for the law to be amended. In addition, we should study the zoning mechanism - for example, the deduction in Ho Chi Minh City and Hanoi is higher than in other provinces - as the current method of regulating regional minimum wages - Mr. Huy said.
According to experts, living expenses have increased significantly over the past 5 years, especially in big cities such as Hanoi, Ho Chi Minh City, Da Nang. The gap between urban and rural living costs is becoming increasingly clear, with essential expenses such as housing, education, healthcare and energy increasing sharply.
For example, a family living in Ho Chi Minh City or Hanoi - where the cost of living is many times higher than in mountainous provinces - needs to pay an average of about 40 million VND/month to meet basic needs. Meanwhile, the maximum family deduction of VND15.5 million/month is not enough to reduce tax pressure for these families.
According to the recent Report of the General Statistics Office, the spatial cost of living index (SCOLI) in 2024 reflects the difference in prices of goods and consumer services serving the daily life of people between provinces and centrally-run cities, between socio-economic regions over a certain period of time. This report said that before the merger, the Southeast region held the position with the most expensive price in the country with the SCOLI index in 2024 at 100.37%. The second place is the Red River Delta 100%, followed by the Northern Midlands and Mountains 99.98%, the North Central and Central Coast 99.05%, the Central Highlands 97.69%, and finally the Mekong Delta 97.11%.
This index shows that the same income level but different economic spending and pressure. Therefore, the application of family deduction by region is also rational.
Experts propose adjusting the family deduction according to the actual income and expenditure of each area, instead of applying a general level for the whole country. This can be done based on the regional minimum wage, as the current regional minimum wage policy is applying. The family deduction for taxpayers and dependents in big cities such as Hanoi and Ho Chi Minh City will be higher than in mountainous provinces and remote areas.
How does the Ministry of Finance explain?
In the submission of the Draft Resolution of the National Assembly Standing Committee on family deduction, the Ministry of Finance said: The Law on Personal Income Tax (PIT) stipulates deductions for taxpayers themselves, deductions for dependents that taxpayers must nurture. This regulation demonstrates the principle of " fairness" and "able to pay taxes", taking into account the characteristics of taxpayers' circumstances: People with higher incomes pay more taxes, people with similar circumstances, but with more dependents pay less taxes, people with low incomes do not have to pay taxes.
The Ministry of Finance stated: In the past, there have been opinions that the family deduction level is still low and there have also been opinions that it is necessary to regulate the family deduction level according to the regional minimum wage, the GTGC level in urban areas, large cities must be higher than in rural areas and mountainous areas due to more expensive costs; there are also opinions that the tax policy regulates at a higher level than in urban areas and large cities to limit immigration to large cities.
From these opinions, the Ministry of Finance stated: The GTGC level for taxpayers is a specific level according to the general level of society, regardless of whether people have high or low incomes, have different consumption needs and live in different regions. The law on personal income tax in countries, including developed and developing countries, only regulates the general GTGC level, applied uniformly, regardless of locality and population groups.
For individuals working in disadvantaged areas, the Law on personal income tax has stipulated that regional allowances, attraction allowances, and relocation allowances are not included in personal income taxable, in order to support workers as well as attract individuals to work in this area. For individuals who are facing difficulties due to natural disasters, fires, accidents, or serious illnesses, the law on personal income tax stipulates tax reductions for these cases.
The Ministry of Finance stated: "The GTGC level needs to be carefully studied and calculated, ensuring it is higher than the GDP per capita, regional minimum wage, and average spending per capita in a certain period of time".
Dr. Nguyen Ngoc Tu proposed to increase the family deduction to 18 million VND/month and apply it from 2025, instead of waiting until 2026 as drafted.
In an interview with Lao Dong Newspaper, Dr. Nguyen Ngoc Tu - Lecturer at the University of Business and Technology - proposed that the family deduction should be increased to 18 million VND/month for taxpayers and 9 million VND/month for each dependent. This is a level supported by many experts because it is closer to actual spending of workers, especially in urban areas, where living expenses have increased significantly compared to the period before 2020.
Another important point emphasized by Dr. Tu is the time of application. According to the draft, the new family deduction policy is proposed to be applied from the tax calculation period in 2026. However, he said that it should be applied earlier, starting in 2025.
"Technically, personal income tax for 2025 will not be settled until April 2026. Thus, adjusting the deduction level applied to 2025 is completely feasible, without any obstacles in organizing implementation" - he analyzed. Luc Giang
