Unreasonable tax distance
The Law on personal income tax in Vietnam is currently applying a partial progressive tax rate with 7 tax levels, with a tax rate of 5% to 35%. The purpose of this policy is to ensure social justice, people with higher incomes will contribute more to the State budget. However, according to many experts, the current tax table reveals certain limitations.
According to Ms. Nguyen Thi Cuc - President of the Tax Consulting Association, Arbitration, VIAC International Referee Center, former Deputy General Director of the General Department of Taxation, the current progressive tax table is unreasonable due to the limited distance between levels.
Ms. Cuc believes that the current tax table has not created a balance between personal income tax and corporate income tax. C business income tax (CIT) is currently only at 20% and has many preferential policies, while the CIT is 35% without any incentives, even for industries that need to attract high-quality human resources. This situation causes some individuals to be subject to a tax rate of over 30% of their total taxable income, creating pressure on employees with good or higher income, Ms. Cuc analyzed.
Sharing the same view, Mr. Nguyen Quang Huy - CEO of the Faculty of Finance - Banking (Nguyen Trai University) said that although the gradual progressive tax mechanism with 7 tax levels, ranging from 5% to 35%, is designed to ensure fairness, helping people with high incomes contribute more to the budget, this tax table is no longer suitable.
"Currently, the highest tax rate applied from an income of 80 million VND/month is unreasonable. In industries with strong growth rates such as information technology, finance, and healthcare, the average salary of senior personnel has increased significantly in recent years. If a tax rate of 35% is applied right from an income of VND 80 million/month, this could reduce labor motivation and encourage workers to find ways to convert their income to other forms to reduce tax obligations, said Mr. Huy.
Need to extend the gap and reduce tax rates to the maximum
Many experts believe that the personal income tax system needs to be adjusted to suit socio-economic realities, creating motivation for high-income workers to develop their careers and increase their official income.
Proposing solutions to reform tax rates, Dr. Nguyen Ngoc Tu - Lecturer at Hanoi University of Business and Technology said that it is necessary to replace the 7-level tax rate table with a 5-level tax rate table, while expanding the income range for each level to reduce tax obligations for middle-income groups. "People with an income of less than 20 million VND/month (after deduction of family deduction) should only pay tax at the lowest level, the tax rate of 5%". The highest income subject to the maximum tax rate can be increased to 200 million VND/month instead of 80 million VND as at present. This helps ensure that people with real high incomes are subject to the highest tax rate, while encouraging high-quality workers to stay and work in the country.
Mr. Nguyen Quang Huy also said that it is necessary to reduce the number of tax levels from 7 to 4-5 levels to make the tax system simpler, making it easier for workers to understand and apply. Expand the gap between tax rates, especially in tax rates of 20%-30%-35%, to avoid increasing tax obligations when income increases slightly. At the same time, reduce 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.
