Government proposes new family deduction level

Increase the family deduction for the taxpayer himself to 9 million VND/month; each dependent is 3.6 million VND/month.

On the morning of October 26, Minister of Finance Vuong Dinh Hue, authorized by the Prime Minister, presented the Draft Law on amending and supplementing a number of articles of the Law on Personal Income Tax.

Accordingly, the Government submitted to the National Assembly permission to adjust the family deduction level for the taxpayer from 4 million VND/month to 9 million VND/month (108 million VND/year); the deduction level for each dependent from 1.6 million VND/month to 3.6 million VND/month.

According to this family deduction, a single person with an income of 9 million VND/month does not have to pay tax, a person with 2 dependents with an income of 16.2 million VND/month or less does not have to pay tax; a person with an income of 20 million VND/month with 1 dependent only has to pay tax of 490,000 VND/month (equal to 2.45% of taxable income), the individual's income after tax is 19.51 million VND; similarly, if there are 2 dependents, the tax payable is only 190,000 VND/month (equal to 0.95% of taxable income) and the income after tax is 19.81 million VND.

At the same time as adjusting the family deduction level, the draft Law adds an "open" provision so that when the consumer price index (CPI) fluctuates above 20%, the Government will submit to the National Assembly Standing Committee to adjust the family deduction level in accordance with price fluctuations. The submission also states that with this family deduction level, the tax adjustment level will be reduced at all levels, 100% of taxpayers currently at level 1 will be transferred to the tax-free status, 72% of taxpayers currently paying at level 2 will be transferred to pay tax at level 1.

According to calculations, if the adjustment to increase the family deduction level is made and the current tax schedule is kept unchanged and the Law is expected to take effect from July 1, 2013, the expected reduction in budget revenue for the last 6 months of 2013 is about 5,200 billion VND and the reduction in budget revenue in 2014 is about 13,350 billion VND.

Reduce tax payers

The report on the review of the draft Law amending and supplementing a number of articles of the Law on Personal Income Tax presented by Member of the Standing Committee of the National Assembly, Chairman of the Finance and Budget Committee of the National Assembly Phung Quoc Hien affirmed that the Finance and Budget Committee agreed on the necessity of amending the Law to promptly overcome limitations, establish a complete and synchronous legal framework, and facilitate the implementation process.

The Review Report also stated that the majority of opinions in the TCNS Committee agreed with the family deduction level as stipulated in the Draft Law. However, the Finance and Budget Committee believes that raising the family deduction level as stipulated in the Draft Law will lead to a number of consequences.

Accordingly, raising the VAT rate will change the original goal of the Personal Income Tax Law passed by the 12th National Assembly, which is "the number of taxpayers will gradually increase, more and more people with average incomes or higher in society will have the opportunity to gradually get used to this tax and fulfill their obligations to the country, contributing to stabilizing the state budget revenue".

According to the Government's Proposal, the whole country currently has about 3.87 million people who have to pay personal income tax (accounting for only 4.4% of the country's population). If the Law is amended to increase the family deduction level as in the Draft Law, it will lead to a narrowing of the taxable population to only about 1 million people, a huge reduction compared to the present and a low proportion compared to the total number of people with income. Similarly, the number of individual business households subject to personal income tax has also decreased significantly; the results achieved in the implementation of the Law in the past time will not be maintained and promoted.

The Committee also believes that raising the family deduction level will significantly affect the state budget revenue (in 2013, the state budget revenue decreased by about VND 5,200 billion; in 2014, the revenue decreased by about VND 13,350 billion), reducing resources to ensure the implementation of budget expenditure tasks.

Regarding the regulation on adjusting the family deduction level when prices fluctuate by more than 20% compared to the time the Law takes effect or the time of the most recent adjustment of the family deduction level, the majority of opinions in the Committee on Financial and Administrative Affairs agree with the provisions of the Draft Law on assigning the Standing Committee of the National Assembly to adjust the level to ensure compliance with the authority to decide on tax policies in accordance with the provisions of the Law on Organization of the National Assembly while still meeting the requirement of flexibility in handling unusual situations.

According to VOV-M