Personal deductions: The 'first' challenge
Recently, alongside the joy of the increase in the basic salary, many people have shared concerns about the fact that while salaries have increased, the personal allowance remains low, resulting in the actual amount received not meeting expectations. The personal allowance is considered the first and most challenging problem for many households: "Where will the money come from?"
A teacher confided that both he and his wife are civil servants, so all family expenses depend on their monthly salaries. After receiving a salary increase, their combined income rose, but living expenses also increased significantly compared to a few years ago; moreover, personal income tax also increased because the family allowance remained unchanged. Therefore, despite the salary increase, their standard of living did not improve; they still struggled to make ends meet! In the future, it is likely that covering living expenses will become even tighter due to rising prices and the increasing educational and living costs of their growing children.
On Facebook, it's easy to find shared experiences from women struggling with household chores: Currently, the primary breadwinner earns around 14 million VND per month. After deducting the allowance for raising one child, they still have to pay personal income tax. The allowance for one dependent is 4.4 million VND, but they still spend 5 million VND each month hiring a babysitter, not to mention other expenses for the child's essential needs. Many families are in the same situation, and it's clear that the current allowance is not realistic.
The increase in the basic salary from VND 1.8 million/month to VND 2.34 million/month, as stipulated in Decree 73/2024/ND-CP effective from July 1, 2024, carries the hope of contributing to improving the living standards of officials, civil servants, and members of the armed forces. With a 30% salary increase leading to a higher standard of living, a corresponding increase in personal allowances can be considered a reasonable solution.
According to the Personal Income Tax Law, if the consumer price index fluctuates by more than 20% compared to the time the law came into effect or the time of the most recent adjustment of the personal allowance, the Government shall submit a proposal to the Standing Committee of the National Assembly to adjust the personal allowance.
Since 2009, the initial personal allowance for taxpayers under the law was 4 million VND/month. After two adjustments, by 2020, the personal allowance for taxpayers was raised to 11 million VND/month.
Some argue that since 2020, the consumer price index has not fluctuated by as much as 20%, and that its development will continue to be monitored, leading to proposals for adjusting the personal allowance at an appropriate time. However, there is reason to believe that the current personal allowance is outdated compared to the actual situation and needs to be adjusted after the increase in the basic salary.
The consumer price index is an important criterion when considering adjustments to personal allowances, but other factors need to be considered to ensure it accurately reflects real-life situations, such as average per capita income, annual inflation rate, and income distribution within the population structure. Furthermore, the consumer price index does not fully reflect the fluctuations and difficulties of economic life. Over the past four years, two of those years were severely impacted by the Covid-19 pandemic, and even now, the lives of a large number of taxpayers, especially workers, remain very difficult.
The personal allowance rate relative to average per capita income in Vietnam is currently relatively high compared to the regional average. In China, the personal allowance per taxpayer is 3,500 RMB/month, equivalent to approximately 0.83 times the average GDP per capita. Compared to some Southeast Asian countries like Malaysia and Indonesia, Vietnam has a higher personal allowance (approximately 1.7 times the average GDP per capita). In Indonesia, the allowance is approximately 0.527 times the average GDP per capita; Malaysia applies an allowance of approximately 0.312 times the average GDP per capita. However, due to the low average per capita income in Vietnam, the absolute amount of the personal allowance is still low.
Deduction policies in some countries show that income tax reductions for taxpayers with serious illnesses have been applied to healthcare costs. In addition, other deductions are also detailed, including: children's education, housing costs, elderly care, and significant medical expenses. These examples illustrate that the basis for adjusting personal deductions in our country is incomplete, relying solely on income and expenses without considering fluctuations that could significantly impact taxability, such as high medical costs. The criteria for determining dependents eligible for personal deductions are also not clearly defined. Cases involving stepchildren, children starting school late, children repeating a grade, or children awaiting university entrance exams are not clearly defined, causing difficulties in law enforcement.
Personal allowances need to be calculated more carefully to avoid disadvantaging workers. Since personal income tax primarily affects salaried employees, the modest absolute amount of personal allowances makes it more difficult to attract foreign experts and highly skilled workers to the country.
Motivating employees is also challenging, as some believe that the more they strive for higher income, the more taxes they have to pay, leading them to stop at a certain point. Currently, many companies are implementing performance-based pay, but when employees realize that striving for higher income means paying more taxes, they will not work to their full potential, thus reducing their enthusiasm for their work.
According to the roadmap reported by the Ministry of Finance to the Government and the Standing Committee of the National Assembly, a comprehensive revision of the Personal Income Tax Law is expected in 2025, including provisions on taxable income, taxable income, and personal deductions. However, considering various factors, raising the personal deduction for personal income tax at this time is reasonable to ensure harmony with actual living conditions and consumption, contributing to motivating, supporting, and alleviating difficulties for taxpayers, making the recent salary increase as intended, which is to improve people's living standards.
