fixed family deduction in the context of escalating prices
At the workshop "Personal Income Tax Law - Ensuring fairness, promoting growth" organized by Lao Dong Newspaper in coordination with the National Economics University, the issue of reducing the personal income tax burden for employees was mentioned by many experts.
Associate Professor, Dr. Phan Huu Nghi, Deputy Director of the Institute of Banking and Finance, National Economics University, said: The trend of personal income tax reform is aimed at three main goals: reducing the tax burden on employees, ensuring vertical fairness because personal income tax is a direct tax, and expanding the tax base to adapt to digital transformation and globalization. In addition, it is to promote the driving force for economic development, towards sustainable growth.
Data from the Ministry of Finance shows that in the period of 2020-2024, total revenue from personal income tax will increase by about 70%, from VND 110,000 billion to nearly VND 198,000 billion. However, in the same period, the average income per capita increased by only about 30%, from 3,548 USD to 4,622 USD. It can be seen that the personal income tax contribution rate is increasing much faster than the actual income increase of the people.
From January 1, 2026, the taxable revenue threshold for individual business households will increase from VND 100 million/year to VND 200 million/year, equivalent to an income of about VND 18 million/month. Meanwhile, the current family deduction is only 11 million VND/month, showing the unreasonableness of current regulations.
According to studies on income distribution, the most common income of workers today is around 8,400 - 10,500 USD/year, or about 20 - 25 million VND/month. If using this level as a basis, I think the family deduction is reasonable, so it should be around 20 - 25 million VND/month, instead of 18 million VND as some current proposals, said Associate Professor Nghi.
Associate Professor, Dr. Le Xuan Truong - Head of the Tax Department, Academy of Finance said: " Maintaining a fixed family deduction level in the context of escalating prices causes many workers to have to pay taxes even though their real income does not increase or even decrease due to inflation".
Reducing financial pressure on workers
According to Associate Professor Truong, in the next 5 years, Vietnam will still be a developing country with average income, so it is necessary to accept a relatively high family deduction compared to GDP.
He proposed that the deduction for taxpayers should be equivalent to about 1.5 times the GDP per capita. If compared by GDP at purchasing power parity (PPP), this level is only about 0.6 times, equivalent to countries with similar development levels. At the same time, he proposed to maintain the principle of deducting each dependent at 40% of the deduction of the taxpayer himself.
In addition, it is necessary to stipulate the family deduction level determined annually according to the adjustment principle corresponding to the CPI, and at the same time assign the authority to decide on this adjustment level to the Government to ensure tax policies are consistent with the actual economic situation.
Proposing a solution, Associate Professor Nghi said that the current progressive tax rate for calculating personal income tax includes 7 levels, with a tax rate of 5% to 35%. However, the tax rates are designed to be too thick and the range between the levels is too narrow, causing the tax rate and the amount of tax payable to increase rapidly even if income only increases slightly.
"This tax system makes it easy for people with average incomes to be pushed into the group of high taxable people, creating great financial pressure and reducing labor motivation" - he said.
A reasonable reform option is to adjust the gap between tax levels. extending the distance to a reasonable coefficient, such as coefficient 2, will help the tax system become more stable, increase openness, encourage income increase and avoid the situation where middle-income workers still have to pay unreasonably high tax rates.
In addition, the number of tax levels can be reduced from 7 to 5, helping to simplify the tax calculation system while still ensuring a reasonable source of revenue for the State budget. Proposed adjustment of the tax table as follows:
Level 1: Income from 0 - 10 million VND, tax rate of 5%
Level 2: Income from 10 - 30 million VND, tax rate of 10%
Level 3: Income from 30 - 70 million VND, tax rate 15%.
Level 4: Income from 70 - 150 million VND, tax rate of 20%.
Level 5: Income over 150 million VND, tax rate 25%.
This will help the tax system become more fair, reduce financial pressure on workers, and still ensure budget revenue.
He proposed that the maximum tax rate in Vietnam should stop at 25%, especially in the context of low average income and the economy still needing to accumulate and invest. Currently, corporate income tax is at 20%, so a reasonable personal income tax rate will create more motivation for employees.
