Proposal to raise the deduction threshold from 2 million to 5 million VND
In the draft Decree detailing a number of articles and measures to organize and guide the implementation of the Personal Income Tax Law just submitted to the Government, the Ministry of Finance proposed raising the threshold for personal income tax deduction of 10% for temporary income from 2 million VND/time to 5 million VND/time.
According to the draft, organizations and individuals paying salaries, wages, remuneration or other expenses to residents who do not sign labor contracts or sign labor contracts for less than 3 months must deduct 10% personal income tax before payment if the expenditure level is from 5 million VND/time or more.
In case the payment level is below 5 million VND/time, the income-paying unit may deduct 10% as requested by the income recipient.
For individuals who only have a single income item subject to 10% deduction, but estimate that the total taxable income after family deduction is not yet at the level to be taxed, employees are allowed to make a commitment according to the form and send it to the income-paying organization to temporarily avoid tax deduction.
According to current regulations in Circular 111/2013 of the Ministry of Finance, the current deduction threshold is from 2 million VND/payment or more. This regulation has been maintained from 2013 to present.
The Ministry of Finance said that raising the threshold to 5 million VND is to better suit the current income level and prices, and at the same time reduce the number of cases of tax deductions for small incomes.
Workers lose time doing procedures
Talking to Lao Dong Newspaper, Ms. Nguyen Thi Hue (34 years old) said that she regularly takes on seasonal jobs such as translation and data entry.
According to Ms. Hue, many income items are only a few million VND but are still deducted 10% before receiving the money. "There was a time when I worked as a collaborator translating documents simultaneously in 3 places, the total income for the whole year was not enough to pay tax, but at the end of the year I still had to contact other places to apply for documents, carry out tax refund procedures to get back a few million VND that had been deducted. The dossier is not too difficult but also quite time-consuming," she said.
From an accounting perspective, Ms. Le Thi Duong said that every year she receives many cases of seasonal workers or collaborators coming to ask for tax refund support.
According to Ms. Duong, most tax refund dossiers belong to the group of low-income people, working for a short time in many different places and being deducted 10% at source.
Many people are only deducted a few hundred thousand to several million VND but still have to collect documents, declare and finalize at the end of the year to receive the money back. There are cases where the refund is not much but still takes time to contact places to apply for documents to complete procedures," Ms. Duong said.
Ms. Duong also said that current regulations cause businesses to incur additional procedures related to deduction, issuance of documents and declaration of tax finalization. "Many businesses have to separate each group of workers to determine which cases deduct 10%, which cases calculate according to a progressive schedule. This increases the workload of accounting, especially for units using many collaborators or seasonal workers," she said.
Experts propose to abolish the 10% deduction mechanism
Regarding the current deduction mechanism, Mr. Le Van Tuan - Director of Keytas Tax Accounting Co., Ltd. said that maintaining two tax calculation methods for short-term and long-term workers in parallel is increasing administrative procedures and creating many irrationalities.
According to Mr. Tuan, currently labor contracts under 3 months or unsigned contracts are fixedly deducted 10%, while contracts from 3 months or more are calculated according to the progressive tax schedule. However, by the end of the year, all income is still finalized according to the progressive tax schedule.
So why do we need to temporarily deduct 10% without calculating it according to the progressive tax schedule right from the beginning, when at the end of the year we still have to finalize in this way," Mr. Tuan stated his opinion.
According to Tax Director Keytas, if the 10% deduction mechanism is abolished and a unified progressive tax schedule is applied to resident individuals, it will help simplify procedures, reduce the need to make commitments in Form 08/CK-TNCN and significantly reduce the number of tax refund dossiers at the end of the year.
He also said that current regulations create inadequacies when some tax-exempt incomes such as meal allowances or overtime pay are still included in total income to deduct 10%.
Many low-income people are deducted first and then have to spend time going for tax refunds, while high-income people only temporarily pay 10% in the year and finalize supplementary settlement later," Mr. Tuan said.
According to him, the abolition of the 10% deduction mechanism will not change the final tax obligation or affect budget revenue, because all income is still finalized according to the progressive tax schedule as it is now. However, this approach may help reduce administrative procedures and reduce compliance costs for businesses and employees.
