That is the analysis of Mr. Nguyen Quang Huy - CEO of the Faculty of Finance - Banking (Nguyen Trai University) within the framework of the Workshop "Personal Income Tax Law - Ensuring fairness, promoting growth" organized by Lao Dong Newspaper in coordination with the National Economics University on March 14, 2025.
Lao Dong Newspaper would like to quoted the speech of Mr. Nguyen Quang Huy - CEO of the Faculty of Finance - Banking (Nguyen Trai University).
Increase the family deduction and the dependent deduction
Tax pressure in the context of increasing living expenses
According to current regulations, the family deduction for individuals who pay taxes is 11 million VND/month, and the deduction for each dependent is 4.4 million VND/month. This level has been applied since 2020 and has been maintained until now, while the cost of living has increased sharply every year, seriously affecting people's purchasing power.
In reality, from 2020 to now, the Vietnamese economy has experienced many major fluctuations, especially in the post-COVID-19 pandemic period, when living expenses increased rapidly in the context of the global economic recovery.
According to data from the General Statistics Office, the consumer price index (CPI) has increased significantly, especially in the groups of essential goods such as food, healthcare, education and housing. In particular, food prices - the group that accounts for a large proportion of household spending - have continuously increased at double digits per year. The cost of healthcare and education services also tends to increase, while the prices of housing, electricity, water, and gasoline all set a new price level, directly affecting people's lives, especially those with average and low incomes.
Maintaining a fixed family deduction in the context of escalating prices causes many workers to have to pay taxes even if their real income does not increase or even decrease due to inflation. For example, an individual with an income of VND20 million/month in 2020 after deducting the family deduction still has VND9 million subject to tax. But by 2024, with the same salary, living expenses have increased significantly, real income has decreased sharply, but they still have to pay taxes as before. This leads to an unreasonable situation when the tax rate does not accurately reflect the actual income of the people.
The deduction for dependents also revealed many shortcomings. With a rate of 4.4 million VND/month, this figure is unlikely to meet the living and education needs of children or the cost of caring for elderly parents, especially in big cities like Hanoi or Ho Chi Minh City, where living costs are much higher than in other localities. According to calculations, the cost of raising a child in a large urban area, including tuition, food, and health care, can be up to 8-10 million VND/month, double the current deduction. The application of a deduction lower than actual spending has created a financial burden for families with young children or dependents.
Flexible adjustments to ensure fairness and support workers
Given this reality, it is necessary to adjust tax policies in a more flexible direction, ensuring that they are suitable for economic fluctuations.
Increase the family deduction to about 15-17 million VND/month to match the actual living expenses of workers today. The deduction for dependents is up to 6-7 million VND/month to accurately reflect the cost of raising children or caring for relatives.
Apply an automatic inflationary adjustment mechanism instead of maintaining the current fixed level. When the CPI increases beyond a certain threshold, the family deduction and dependent deduction need to be adjusted accordingly. This mechanism helps the tax system keep up with real life without having to wait for the current prolonged and delayed amendments to the Law on Tax Administration.
Consider a specific deduction policy for some groups of subjects such as workers working in large cities with high living costs or households with young children of school age. This can help ensure more fairness in tax calculation.
Socio-economic impact of family deduction adjustment
Raising the family deduction level will help reduce the tax burden for workers, especially the middle and low-income groups - the most severely affected by inflation. When real income increases thanks to reduced tax obligations, people will be able to spend more, thereby stimulating consumption and contributing to promoting economic growth.
In addition, the reasonable adjustment of the deduction level also helps limit the situation of many people falling into the taxable group even though their actual living standards are not high. If not adjusted, the tax system will become increasingly unreasonable when many workers have moderate incomes but are still taxed like those with high incomes.
This can reduce the motivation for workers, affect labor productivity as well as the ability to attract high-quality workers to important industries.
In addition, a more flexible tax system will also help increase tax compliance rates. When people feel the tax rate is reasonable and fair, they will be more motivated to declare and pay taxes more fully. This not only helps create a transparent financial environment, but also contributes to increasing state budget revenue sustainably in the long term.
In the context of strong economic fluctuations, adjusting the family deduction and dependent deduction is not only an urgent requirement to ensure fairness, but also an important solution to promote consumption, support workers' lives and create momentum for sustainable economic development.
Progressive tax reform towards reducing tax rates and expanding tax rate distances
Inadequacies in the current progressive tax table
According to current regulations, personal income tax (PIT) is applied according to the partial progressive tax table with 7 tax levels, ranging from 5% to 35%. Although the progressive tax mechanism is designed to ensure fairness, helping people with high incomes contribute more to the budget, in reality, it shows that this tax plan has many major shortcomings.
Firstly, applying a maximum tax rate of 35% to income over VND 960 million/year (equivalent to VND 80 million/month) is not suitable for the current economic situation. In the context of average salaries in many industries tending to increase rapidly, especially in the fields of information technology, finance, healthcare, and industries with high intellectual content, this income level is no longer considered too high as before. This makes many workers with good expertise and stable income feel subject to heavy tax, leading to a mentality of discouragement of working and contributing.
Second, the gap between tax levels is still narrow, causing many people with slightly increased incomes to suddenly have to pay higher taxes. Currently, just need to increase income from 52 million VND to more than 80 million VND/month, workers have had to jump from a tax rate of 20% to 30%, significantly increasing the amount of tax payable. This can lead to a "tax trap", in which workers are motivated to reduce their official income or seek to convert income to forms that are not subject to high taxes, leading to a loss of state budget revenue.
Third, the current tax system causes a lack of transparency and complexity in tax declaration. Many workers do not clearly understand how to calculate taxes because the tax declaration has too many levels, leading to errors in declaration or need for support services, increasing unnecessary costs.
Proposal for reform to optimize the personal income tax system
To overcome the above shortcomings, there should be reasonable adjustments in tax policies to create motivation for work, increase actual income for workers, and still ensure revenue for the state budget. Specific proposals include:
Reducing the number of tax rates from 7 to 4-5 levels to make the tax system simpler, making it easier for employees to understand, apply and avoiding tax rates that increase too quickly, causing unnecessary pressure.
extend the gap between tax rates, especially in tax rates of 20%-30%-35%, to avoid sharply increasing tax obligations when income increases slightly. This will help workers not feel taxed too high just because the salary increase is a few million VND per month.
Reduc the highest tax rate to 30% and only apply to income over VND2 billion/year, instead of VND960 million/year as at present. This helps the tax system become more fair, applying only the highest tax rate to individuals with real high incomes, instead of competing with people with good average incomes in developing industries.
Adjusting the tax table in a reasonable direction not only reduces tax pressure but also creates motivation to work and contribute. When the tax rate is adjusted appropriately, workers with high incomes will no longer feel subject to heavy taxation, thereby being willing to increase their official income instead of trying to evade taxes. At the same time, a reasonable tax system also helps Vietnam improve competitiveness in attracting and retaining high-quality labor, limiting the situation of brain drain due to high tax rates reducing real income.
In addition, extending the gap between tax levels helps reduce the incentive for tax evasion, limiting the transfer of income to other forms to avoid taxes, thereby increasing revenue for the state budget sustainably. The simplification of the tax system also contributes to improving transparency, helping people easily fulfill their tax obligations without the need for support from accounting services or tax consultancy, while helping tax authorities manage more effectively.
Progressive tax reform not only ensures fairness but also promotes economic growth, encourages high-quality labor and creates sustainable budget revenue. In the context of many economic changes, adjusting tax policies in a flexible direction, in line with reality is necessary to create development momentum for Vietnamese workers and the economy.
Simplifying tax declaration, settlement and refund procedures
Inadequacies in the tax declaration, settlement and refund process
Currently, the process of declaring, settling and refunding personal income tax (PIT) still has many problems, causing significant difficulties for employees. The tax declaration system requires taxpayers to perform many manual steps, including collecting tax deduction documents, filling out forms, submitting documents and waiting for approval. This process not only takes time but is also prone to errors due to complex processes, especially for those who do not have accounting expertise.
In addition, many individuals do not clearly understand how to declare taxes, leading to the situation of having to ask for support from businesses or hire accounting services to fulfill tax obligations. This not only creates unnecessary costs but also creates more administrative pressure for both employees and businesses. In some cases, employees with income from many different sources (such as having both official salaries and income from investment or freelance work) have to settle taxes themselves, but the current system does not provide full support, making the declaration process more complicated.
In addition, the tax refund procedure is still prolonged, causing inconvenience to taxpayers. Currently, when employees have excess taxes, they have to carry out many paperwork to request a tax refund, then wait for approval for many weeks or even a few months. This reduces the effectiveness of the tax refund policy, causing a fear of taxpayers.
Proposed solutions to simplify tax administrative procedures
In order to overcome the above shortcomings, it is necessary to implement strong reform measures in the tax declaration, settlement and refund process, including:
Build an automatic tax settlement system based on data from payment agencies such as businesses, banks, and social insurance. At that time, the tax system will automatically synthesize income, calculate the amount of tax payable and send notices to employees, helping to minimize manual operations and limit errors in declaration. This mechanism has been successfully applied in many developed countries such as the US, Japan and European countries.
Integrating tax refunds directly into personal bank accounts, allowing people to receive tax refunds quickly without the need for cumbersome documents. This can be done by linking the tax system to the taxpayer's bank account, similar to the refund method in e-commerce transactions.
Applying digital technology in online tax declaration, allowing people to declare taxes on their phones or computers easily, with a friendly interface and specific instructions. This will help improve tax management efficiency, reduce time and effort for taxpayers. Some countries such as Singapore have applied an electronic tax declaration system integrated with income data from businesses, helping to automate processes and significantly reduce processing time.
Promote data connection between tax authorities and related organizations, such as businesses, banks, and social insurance, to help ensure the accuracy of income information and minimize the risk of errors. When personal income data is collected automatically, employees will not need to synthesize many different sources of income to declare.
Reforming tax procedures not only helps people save time and costs but also brings many practical benefits to the economy. When the tax declaration, settlement and refund process is digitized, employees and businesses no longer have to spend much time learning tax laws or hiring support services, thereby reducing costs and improving the effectiveness of tax obligations. At the same time, automating income data helps tax authorities control more closely, limiting errors in declaration and preventing acts of taking advantage of loopholes for profit.
A simple and convenient tax system will encourage people to fully comply with tax obligations, contributing to increasing budget revenue sustainably. In addition, the application of digital technology not only improves the experience of taxpayers but also helps tax authorities operate more effectively, promoting the modernization of tax management, in line with the digital transformation trend of the economy.
Simplifying procedures for declaration, settlement and refund of personal income tax is an important step to build a more transparent, effective and friendly tax system for people. When tax procedures become simple and convenient, the tax compliance rate will increase, helping to ensure sustainable budget revenue and create momentum to promote socio-economic development.
Positive impact on the economy and the state budget
Adjusting tax policies in a fair and reasonable manner will create more motivation for people to declare and pay taxes more fully. When disposable income increases, people's purchasing power will also improve, promoting consumption and investment, thereby creating momentum for economic development.
For the state budget, tax reform helps increase compliance rates, limit loss of revenue, ensure stable and sustainable revenue sources. A reasonable tax system not only supports people but also creates conditions for the economy to operate more effectively, contributing to strengthening the national budget in the long term.
Implement tax reform according to a reasonable roadmap
The reform of personal income tax needs to be implemented in stages, ensuring a balance between supporting taxpayers and maintaining state budget revenue. In the immediate future, it is necessary to prioritize tax reductions for low-income groups to support people's lives, while adjusting deduction and tax declaration levels to suit economic realities. The change requires a clear roadmap to avoid sudden budget revenue shortages, ensuring long-term national financial stability.
Adjusting personal income tax in the direction of increasing family deduction levels, reforming progressive tax forms and simplifying administrative procedures are urgent requirements in the current socio-economic context. A reasonable tax system not only helps reduce the financial burden on people but also promotes economic growth, while ensuring sustainable state budget revenue.
