Increasing family allowances: An additional one million people will not have to pay personal income tax

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The Ministry of Finance has just drafted a resolution on adjusting the level of personal income tax deduction. The Ministry proposed increasing the family circumstance deduction. In your opinion, what does the adjustment of taxable level mean?

The Law on Personal Income Tax stipulates that when the market price fluctuates above 20 percent, the family circumstance-based deduction must be adjusted to calculate personal income tax.

Recently, based on the actual situation, the consumption index has increased by over 20 percent, the Covid-19 epidemic also affected the production and business activities of businesses, so the payment of the company's budget businesses will also face difficulties. The adjustment of family allowances for taxpayers at this time is very appropriate.

With this adjustment, about one million people who are paying personal income tax at the first level (level 1) will not have to pay income tax.

If the law previously provided for a family deduction of nine million and if the taxpayer has two dependents is 7.2 million (3.6 million / person), then the total income will beVND 16.2 million. This means, individuals who have income over 16.2 million / year must pay personal income tax.

But under the current proposal, the Ministry of Finance raises family allowances to 11 million VND / person, dependent is VND 4.4 million / person, this means that individuals who have an income of over VND19.8 million only pay personal income tax.

For people whohave higher incomes have to pay taxes in the second tier onwards, it is clear that it will be very beneficial when the personal income tax payable will also decrease significantly due to the increase in family allowances. This tax reduction will reduce the state budget revenue, but individual taxpayers will benefit because of the reduction of tax.

It is said that if income of VND 11 million / person / month has to pay taxes, it will not guarantee life. For dependents, too, VND 4.4 million / person / month is not enough to cover daily life, schooling, medical examination. What are your views on this issue?

Currently, there are people who do not understand personal income tax correctly. They think that the income of over 11 million VND has to pay taxes, which is difficult for them to live or to raise a child of only VND 4.4 million with those in rural areas can be acceptable, but in big cities like Hanoi and Ho Chi Minh City is not enough.

It must be further clarified that the level of family allowances prescribed by law is a general level, regardless of whether it is rural or urban. The family allowances are the amount deducted before calculating personal income tax for the taxpayer himself and the dependents that the taxpayer is responsible for raising.

These family allowances are not for taxpayers and dependents to live onbut are based on minimum consumption.

Increasing family allowances to 11 million VND / person / month does not mean that individuals only spend 11 million, which is only deductible before calculating taxes. After taking salaries and wages minus social insurance, health insurance, unemployment insurance that the taxpayer pays, minus the deduction for family circumstances, charitable and humanitarian contributions. The remainder is the income used as a basis for calculating personal income tax. On this basis, the tax will be paid according to the partially progressive tariff, the lowest is 5 percent and the highest is 35 percent. The rest after personal income tax belongs to taxpayers.

To make it easy to understand, for example, if a person has an income of VND 20 million / month, excluding social insurance, health insurance, unemployment insurance then this person does not have to pay personal income tax because compulsory insurance of 10.5 percent, including: (8 percent social insurance + 1.5 percent health insurance + 1 percent unemployment insurance) is 2.1 million VND (20 million VND x 10.5 percent), the family deduction is 19.8 million dong, totaling 21.9 million dong. This total amount is not subject to personal income tax.

If the income is 22 million, after paying compulsory insurance, deducting VND 19.8 million, it is still not required to pay tax. If an individual has raised two dependents, it must have income from 23 million / month or more to pay taxes. But personal income tax of the income of 23 million VND after payment of social insurance and family allowances only pay personal income tax of VND 39,250 / month.

If the income is 30 million dong / month, social insurance payment is VND 3,129 million; family allowances for 2 people (reduced 19.8 million), so the taxable income is 30 million - 3,129 - 19.80 = 7,010 million.

The tax rate will be calculated as follows: Level 1 (VND 5 million x 5 percent) is VND 250,000, level 2 [(VND 7,071-5 million) x 10 percent] is VND 207,000. The total amount of tax payable is VND 457,000. This means that an individual with an income of VND 30 million is allowed to spend up to VND 29 million of VND 453,000, not only spending VND 11 million, VND 4.4 million as many people think.

The increase in family allowances for taxpayers from VND 9 million per month to VND 11 million per month. Is the deduction for dependents from VND 3.6 million / month to VND 4.4 million / month reasonable?

The proposal that the Ministry of Finance has made is quite reasonable. Because this increase is from 9 million / month to 11 million / month, up over 22 percent. According to the provisions of the Law on Personal Income Tax 2012, the consumption index increases by more than 20 percent compared to the time when the law takes effect or the time to adjust the latest family allowances, the Government submits to the National Standing Committee Assembly adjust the family allowances. If the family allowances are approved by the Standing Committee of the National Assembly, the family allowances are higher than many countries in the world.

Besides, as the very specific example above, with an individual earning 20 million VND / month (even 22 million VND) - the income level for people living on wages and wages in the city,the average income is large, it is possible to live with an average living standard, but in rural and mountainous provinces, such income is relatively high. However, this income is not subject to personal income tax. Therefore, it is reasonable to raise the family allowances as proposed by the Ministry of Finance.