Vietnam's Personal Income Tax (PIT) is one of the current 9 taxes contributing more than 198 trillion VND in total revenue of more than 1.9 million billion VND (estimated) in 2024, accounting for about 10% of total revenue. The proportion of tax collection on total revenue is increasing, contributing to fair income regulation.
However, in the application process along with changes in the economy and society, personal income tax has identified limitations that need to be adjusted and supplemented towards the goal of: Ensuring fairness in a real vertical direction, increasing budget revenue and adapting to changes in the economy with a double-digit growth strategy from 2026.
Law on personal income tax and important amendments
The Law on personal income tax was passed by the National Assembly in 2007 and applied in 2009, however, during its implementation, it has revealed shortcomings and has been adjusted to suit the reality of life and fluctuations in the economy. Among the important amendments, it can be mentioned:
2012: The National Assembly issued Law No. 26/2012/QH13 amending and supplementing a number of articles of the Law on personal income tax and applying it from July 1, 2013. This is the first important adjustment since the Law on personal income tax took effect. According to Circular 111/2013/TT-BTC, the family deduction is adjusted from 4 million VND/month to 9 million VND/month for individuals and from 1.6 million VND/month to 3.6 million VND/month for dependents. This adjustment is made to more accurately reflect people's living standards as well as the impact of inflation in the previous period.
2020: The National Assembly continues to adjust the family deduction to 11 million VND/month for individuals and 4.4 million VND/month for each dependent according to Resolution 954/2020/UBTVQH 14. The increase in the family deduction this time comes in the context that after 7 years of application, this year was negatively affected by the COVID-19 pandemic, people's real income decreased, and inflation continued to increase.
Thus, the roadmap for adjusting personal income tax has undergone changes to ensure compliance with real life and socio-economic situation.
Budget revenue from personal income tax for the period 2020 - 2024
Along with the development of the economy, total revenue from personal income tax in Vietnam tends to increase strongly in the period of 2020 - 2024. According to statistics, in just 4 years, total personal income tax revenue has increased by about 80%, almost double. This raises many questions about the reasonableness of current tax policies, especially the relationship between the rate of increase in tax revenue and the rate of increase in per capita income.
Northern property tax growth every year
Below is a summary of the budget revenue from personal income tax by year for the period 2020 - 2024:
The above data shows that total revenue from personal income tax tends to increase faster than per capita income (except for 2023), faster than the GDP growth rate. This raises the question of the level of harmony of current tax policies, whether the optimal tax collection rate according to Laffer curve theory is at what percentage of income is appropriate?
Comparing the rate of tax collection with the rate of increase in per capita income and inflation
Personal income tax and per capita income data for the period 2020 - 2024 shows that tax revenue increases significantly faster than the growth rate of per capita income.
Total revenue from personal income tax in the period of 2020 - 2024 increased by 72%, from 115 trillion VND to 198 trillion VND.
Average income per capita in the same period increased by 30.2%, from 3548 USD/year to 4622 USD/year.
Average annual inflation ranges from 0.81% - 4.16%, with the highest in 2023 (4.16%) and the lowest in 2021 (0.81%).
When considering inflation factors, the actual increase in per capita income may be lower than the nominative figure. Specifically:
In the period of 2020 - 2024, total accumulated inflation will be about 12.58% if compared to the base period of 2020, the increase is about 28%. This means that although the average income per capita has increased by 30.2%, actual purchasing power may not increase accordingly.
If the impact of inflation is eliminated, real income growth will be lower than nominative growth, leading to workers actually having less money to spend after paying taxes.
Meanwhile, total personal income tax revenue has increased over the years, even in the context of high inflation. This could create financial pressure for taxpayers, especially those with average incomes.
Impact of inflation on tax policy
Inflation can affect the personal income tax system in two main ways:
Inflation reduces the real value of income, but the family deduction level is not adjusted in a timely manner.
The current family deduction remains at 11 million VND/month, although living expenses have increased significantly over the years.
When income increases but inflation increases accordingly (as in the above table) causing real income to not increase, workers may be pushed into the higher tax rate group without actually having more money to spend.
Indirect tax increase due to increased inflation
When prices increase, businesses often increase wages to retain workers, leading to higher nominative income.
However, if the family deduction is not adjusted, higher nominative income will push many people to higher taxes, causing them to pay more taxes even though they are not actually richer.
In general, in the period of 2020 - 2024, the rate of increasing personal income tax is not only faster than per capita income but also does not accurately reflect the change in real income. This requires reviewing the family deduction level as well as the progressive tax payment to ensure a fairer tax policy, in line with the economic reality and living standards of workers.
Sources of income from personal income tax
Currently, personal income tax in Vietnam is collected according to regulations for 10 different income groups. In which, the group that brings the largest revenue mainly comes from wages, wages - that is, income from labor. In addition, a large part comes from the business activities of individual households. This is the most important source of income, contributing a large part to the total budget revenue from personal income tax.
After that, the next income groups brought in a significant source of income, including income from stock trading and real estate transfers.
This is important when mentioning tax adjustments. If we want to adjust personal income tax policies towards increasing revenue, we need to consider the impact on key income groups. Similar to the state budget revenue structure, when the State wants to increase revenue, it needs to pay attention to the structure of tax revenue sources with large contributions such as VAT, corporate income tax, personal income tax, and special consumption tax, the first target is not small enterprises but large enterprises in key economic centers such as Hanoi or Ho Chi Minh City. The same goes for the personal income tax policy - if there is an adjustment, it is necessary to first consider the impact on the income group with a high contribution rate, instead of applying it to all subjects without considering the level of impact.
When talking about changing personal income tax policies, the issue that the community is currently paying special attention to is the family deduction level and how to cover all revenue sources. The family deduction level is a hot topic and needs to be considered for adjustment to be reasonable, suitable for the economic and living situation of the people. In addition, how to cover all income sources, especially from income groups with large contributions, is also a hot topic of discussion today.
Tax management has two main contents: policy management (tax management documents) and collection management. On the principle of tax management in general and personal income tax in particular: First, personal income tax is a direct tax, meaning that it is necessary to ensure fairness (vertical fairness) in the tax collection process, avoiding unfair tax among taxpayers. Second, in the current context, the important principle is financial transparency. To do so, it is necessary to manage cash flow and control the destination of revenue. On that side, the principle of policy application must be unified, management work needs to be focused.
Currently, Vietnam is applying the method of collecting personal income tax by deducting it from the source. This method has both advantages and disadvantages. However, in essence, personal income tax is a direct tax, meaning that the tax must be collected directly from the taxpayer, and that person must also supervise the tax payment process himself. However, the current source of deduction method is still suitable for the conditions and reality of Vietnam.
Inadequacies and suggestions for amendments
Inadequacies in regulations on income from salaries and wages
Inadequacies in the method of calculating taxes on income from many different sources:
Income from current salaries and wages plays a leading role in total revenue from personal income tax (PIT). However, current regulations in the way of declaring and calculating taxes on income from many different sources are causing unfairness among taxpayers.
According to current regulations, if an individual has income from many different sources, this total income will be calculated to determine the tax payable. But there is one disadvantage: When income from additional sources does not exceed VND 120 million/year, only the paying unit must make a 10% deduction before payment, and at the same time, the employee can authorize the paying unit to pay the main income to settle the tax on his behalf.
This leads to unfairness in the tax system. If an individual with a basic income was subject to a tax rate of 30%, then income from other sources should have been taxed accordingly. However, with current regulations, additional incomes under VND 120 million/year are only deducted by 10%, significantly lower than the actual tax rate that taxpayers should have paid.
Meanwhile, a person with only one source of income but within a high tax framework still has to pay a full tax rate. This creates unfairness among people with the same income but from different sources.
Inadequacies in regulations on income from many sources with the same nature and responsibility for tax declaration
In addition, another problem lies in the regulation on other income such as wages. According to current regulations, if the income from a certain source does not exceed VND2 million/time, the paying unit does not need to deduct 10% of the tax. Currently, many units have fully declared the income but some units have not declared this income in their tax settlement records. This pushes individuals to self-declare, even though their income is only 500 thousand to less than 2 million. If the individual does not declare the tax payment himself, he/she will be fined for this small amount of income. Although the Etax system has met basic requirements many times, it has not really ensured fairness and resolved shortcomings. This reality is happening to many individuals who do not want to evade taxes but are still classified as non-compliant with taxes and are fined. The provisions in the document are like that but the actual declaration is different, creating unnecessary tax administrative pressure for workers with many sources of income.
Tax on income from real estate transfers
Inadequacies in the current tax calculation method
Income from real estate transfers is currently one of the important sources of income in the personal income tax (PIT) system. However, the tax calculation method for this type of income still has many limitations, causing inadequacies in practice.
Currently, personal income tax on income from real estate transfers is applied in two ways:
2% tax on transaction value: The seller must pay a tax of 2% of the total real estate value stated on the transfer contract, regardless of profit or loss.
Tax 20% on the difference between purchase price and selling price: This method requires clear declaration of purchase price and selling price to calculate tax on actual profit.
Although the 2% option on transaction value is simple and easy to collect, it creates a big loophole in selling price declaration. The seller often declares the transfer price lower than the actual price to reduce the tax payable. This not only causes a loss of revenue for the State budget but also causes a lack of transparency in the real estate market.
On the contrary, the 20% tax plan on the difference between buying and selling prices has an advantage because it accurately reflects actual income. However, this method is difficult to determine the correct purchase price, especially for real estate transactions that took place many years ago, when there was no transparent buying and selling price management mechanism as at present.
Should levy tax based on added value and tighten price declaration management
To ensure fairness and limit tax evasion, it is advisable to apply a method of taxing 20% on the difference between purchase and sale prices similar to corporate income tax.
Currently, tax authorities and the Ministry of Agriculture and Environment have full information on purchase and sale prices to calculate taxes. Therefore, transfer price control can be completely done by comparing with actual data. When buyers accept to declare low prices to avoid taxes, at the time of reselling, they will have difficulty recording that the purchase price is lower than the market price, which can lead to higher taxes to be paid in the reselling transaction later, when buyers do not agree to buy and sell at 2 prices (ie declare low prices).
The 20% tax rate on the difference between buying and selling prices also needs to be accompanied by strict sanctions for the act of declaring incorrect prices. At that time, real estate transactions will become more transparent, limiting the situation of "double prices" (real prices and declared prices), while helping the State collect taxes more fairly. The market is pushed up in price by brokers, buying and selling will be minimized.
One of the important impacts of applying a 20% tax on actual profits is to help limit the situation of pushing up real estate prices. If the policy of taxing value added tax is strictly applied, real estate companies will also have to calculate more carefully when deciding on selling prices, thereby helping the market operate more transparently and substantially.
Inheritance tax and gifts
Currently, income from inheritance in the family (including spouses, parents, children) is exempt from tax. However, according to international practice, most countries apply taxes on inheritance to ensure fairness and avoid budget losses. Meanwhile, Vietnam does not have a Property Tax Law.
The current trend of countries is to separate tax management for the super-rich. Our country has a large corporate tax department, so it is also necessary to study the management and transfer of assets of the super-rich with personal income tax. Because this group accounts for a small number but accounts for the majority of assets in society and assets of high value.
To adjust in accordance with international practice, it is possible to consider applying a tax rate of 15% - 20% for large inherited assets, similar to the tax rate applied in some developed countries. There should be a value threshold to exempt tax or apply low tax rates to assets of small value, not large to avoid affecting households not in the high-income group but with inherited assets for donation.
In addition, some countries apply tax incentives for heirs who have directly cared for and raised their parents or relatives for many years. If Vietnam applies this policy, heirs can be reduced to a tax rate of 5% - 10%, or completely exempted from tax in some special cases such as the elderly, the disabled, etc.
Expanding the tax base and taxpayers for income from inheritance and gifts not only helps ensure fairness in the tax system, but also limits tax evasion and accumulation of assets by all means for the next generation, while increasing revenue for the budget and ensuring transparency in asset declaration.
Inadequacies in tax deduction regulations and personal income tax rates
Tax deduction and consistency of family deduction levels.
Tax deduction is an important issue in the personal income tax (PIT) system, because it directly affects the number of taxpayers and the amount of tax payable. Currently, when considering taxable income, it is necessary to consider the necessary costs to generate income, including daily living expenses (travel, food, labor reproduction) and past expenses such as tuition, training expenses... to have today's work and income. However, the current tax system may not fully reflect these factors, leading to unfair taxation for employees.
One of the major controversies at present is the family deduction level. Currently, this deduction is applied consistently nationwide, regardless of the difference in living expenses between provinces and cities. This leads to the problem when the cost of living in Hanoi or Ho Chi Minh City is significantly higher than other provinces, but people here still only enjoy the same deduction. However, dividing the family deduction by area can cause complications in management and implementation. While the principle of tax management is to apply unified policies. So how much is the deduction determined? What is the basis for determination?
Determine the income spectrum to see the appropriate income level applied.
An important issue is the need for data on the income spectrum of workers. According to current estimates, the income group of 18 - 23 million VND/month (8400$ - 10,500$/year) is the largest proportion of the workforce. When developing a tax policy, it is necessary to determine which income level is considered high to start applying tax. If the high income threshold is determined incorrectly, it can lead to the fact that middle-income workers, accounting for the majority of workers, also have to pay high tax rates, causing great financial pressure. If there are statistics on the income range of workers, tax should be taxed at the level of income with the highest concentration of people (could be called:MOT Income).
Therefore, the high taxable income should be considered to be adjusted from 20 - 25 million VND/month to accurately reflect the income situation and avoid taxing the middle-class income group heavily, creating stability over time in addition to focusing on managing the super-rich group.
Adjust the tax deduction level based on economic reality.
The Law on personal income tax was applied in 2009 with a deduction of VND4 million, which was later adjusted to VND11 million. However, with the situation of increasing living costs and living expenses, the question is whether this level is still reasonable or not? Determining the deduction level should be based on factors such as:
CPI (Consumption Price Index) to reflect inflation.
Average income per capita to match the common standard of living.
The minimum wage is to ensure that workers have enough to cover living expenses.
If these indicators have increased significantly, the family deduction level also needs to be adjusted accordingly, instead of staying the same for a long time without any changes in accordance with reality. The next adjustment also needs to take into account the stability for a period of time after that.
Progressive tax reform to ensure fairness
The current progressive tax rate applies from 5% to 35% for 7 different tax levels, but the tax levels are too dense and the range between levels is too narrow, causing the tax rate and tax rate to increase even if income only increases slightly. This leads to the situation where people with average incomes increasing are also quickly pushed into the group of high taxable people, creating great financial pressure and reducing labor motivation. A reasonable reform option is to adjust the gap between levels. extending the gap between tax levels according to a reasonable coefficient (e.g. coefficient 2) will help the tax system become stable, with high openness, creating motivation to increase income, avoiding the situation where middle-income workers still have to pay unreasonably high tax rates. At the same time, 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. This not only creates more fairness among income groups but also encourages workers to increase their income without worrying about being overcharged.
Instead of starting tax rate from 5% with income of 5 million VND, it can be reset as follows: With extension coefficient = 2
Level 1: Income from 0 - 10 million VND: 5%
Level 2: Income from 10 - 30 million VND: 10%.
Level 3: Income from 30 - 70 million VND: 15%.
Level 4: Income from 70 - 150 million VND: 20%.
Level 5: Income over 150 million VND: 25%
The maximum tax rate should be 25% for Vietnam, when the average income is not high, the economy needs to accumulate and invest, corporate income tax is at 20%, creating motivation for workers... Later, when income reaches a high income level, we can increase the tax rate.
Improving personal tax declaration methods to reduce errors
Currently, personal income tax is mainly collected by the method of deduction at source, which means that the enterprise or the paying unit will deduct a part of the employee's income to pay tax on behalf of the employee. However, for people with many different sources of income, the current system still has shortcomings when data is not synchronized between sources of income, leading to a situation where taxpayers may be required to settle taxes themselves or have their taxes collected, even though they have previously deducted taxes at source. The Etax software as mentioned above has improved but not really as expected.
One of the important improvement proposals is:
When income-paying units submit quarterly declarations, they need to update quarterly personal income and the amount of temporary tax paid through the electronic system, data is floating on E-tax. Instead of waiting until the end of the year to settle taxes, workers can monitor updated income declarations from different sources every quarter.
At the end of the year, in the first 3 months of the following year, the software system will automatically synthesize, calculate taxes and notify the amount to be paid. Sending a notice to taxpayers: Do you agree with the tax amount on the tax calculation software or not? Agree, automatically submit. If there are errors, taxpayers can adjust the authentication of tax authorities through the software. Submitting additional or withdrawal tax payments is done automatically via the app.
For example, if an individual has income from teaching, consulting, investing in securities, real estate, the software will synthesize all these revenue sources in each period, helping to calculate the tax payable accurately. Sending the notification, if the taxpayer agrees, the system will automatically deduct and pay taxes without having to carry out manual procedures, helping to minimize errors, avoiding the case of being collected or fined for data differences.
Applying technology to synchronize income information
One of the problems that makes it difficult for people to comply with taxes is the lack of synchronization between income sources. For example, when an individual has income from many places but each place implements different tax deductions (income over 2 million is deductible, under 2 million is not deductible), the declaration of total income may be incorrect.
To solve this problem, it is necessary to build a modern tax management system based on Big Data technology and connect directly with income payment institutions. At that time, all income will be automatically updated into the tax system, helping taxpayers to control their tax obligations in real time.
The application of technology not only helps simplify the tax declaration process, but also helps reduce administrative burdens for both tax authorities and people, while enhancing tax compliance.
Completing the tax declaration system to improve compliance
Currently, many people do not intentionally violate tax regulations but are fined due to complicated and unsynchronized declaration processes, due to different ways of paying different taxes, such as authorization to declare with a 10% deduction or self-declaration of taxes. In some cases, they have paid taxes but because their income has not been fully updated, they are still required to self-declare, causing a waste of time and creating a feeling of injustice.
To improve compliance, there needs to be an automatic tax refund mechanism if people have paid in excess. Instead of having to carry out complicated tax refund procedures, the system can automatically determine the excess tax and return it directly to the taxpayer's account with just a simple operation. This not only helps people easily fulfill their tax obligations but also creates trust in the tax system.
In short, improving tax declaration methods, applying technology to synchronize income data and building a transparent tax refund system are necessary solutions to ensure fairness in personal income tax, helping to increase budget collection efficiency without creating unnecessary burdens for workers.
Conclusion
The current trend of personal income tax reform in countries all focuses on the main goal: First is to reduce the tax burden for workers, who live mainly on wages, wages, and remuneration. Second, enhancing tax fairness is especially necessary to create vertical fairness. Third is to expand the tax base to adapt to changes in the digital economy and globalization.
Therefore, the article recommends:
Applying technology and digitalization to improve the tax system: The application of Big Data technology can help synchronize income information from many different sources, thereby managing cash flow and destinations, and financial transparency in tax management.
With personal income tax, it is necessary to implement quarterly personal income updates instead of waiting for tax settlement at the end of the year. This helps people to adjust errors in a timely manner, avoiding the situation of tax collection due to income differences between sources. In addition, it is necessary to build an automatic tax refund system. If people have paid excess tax, instead of having to go through cumbersome procedures, the system can automatically determine and refund the excess tax to the taxpayer's account.
Reduce the number of tax rates and adjust tax rates reasonably: The number of tax rates should be reduced from 7 to 5, while expanding the gap between levels. In addition, the highest tax rate can be adjusted to a more reasonable level, about 25%, instead of 35% as at present.
Update tax exemption policies for the middle class to suit the reality.
The current family deduction level is outdated compared to the actual living standard, not accurately reflecting the living expenses of workers. Therefore, it is necessary to adjust this deduction based on economic factors such as CPI, per capita income and minimum wage. There needs to be data on Mot income (ie the income level with the largest number of employees).
The study allows the deduction of personal charitable gifts into taxable income, creating humanity and similarity to corporate income tax when humanistic charitable gifts are deducted from the cost before tax.
Adjust taxes on income from real estate and securities.
Currently, tax on securities transactions is calculated at 0.1% of the total transaction value, regardless of investors' profit or loss. This is unreasonable, because even when they suffer losses, investors still have to pay taxes (in fact, up to 80% of stock investors suffer losses). A more reasonable option is to only collect tax on net profit, instead of taxing on the entire transaction. Today's stock company data and software systems can solve this problem.
Regarding personal income tax from real estate transfers, there are currently two calculation methods: 2% tax on transaction value or 20% tax on difference between buying and selling prices; combined with strict sanctions for cases of false declaration of real value.
Increase transparency and simplify tax procedures.
One of the reasons why people are afraid to declare taxes is that administrative procedures are cumbersome and lack transparency. Simplifying and automating the tax declaration and refund process will help encourage people to comply with tax regulations better.
In addition, there needs to be a fair settlement mechanism to avoid cases where people who are aware of compliance are fined for unnecessary administrative violations, while those who intentionally evade taxes are not detected or strictly handled.
