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Under the proposal, people with income up to 15 million per month (with a dependent) do not have to pay taxes. Photo: T. Linh.

Immediately applying for tax period 2020

The Law on Personal Income Tax No. 04/2007/QH12 passed by the 12thNational Assembly of the Socialist Republic of Vietnam on the 21stsession on November 21, 2007, takes effect from January 1, 2009.Accordingly, from July 1, 2013,the deduction for taxpayers is9 million dong per month(108 million dong per year)and the deduction for each dependent is 3.6 million dong per month. Also in this Law, the Consumer Price Index (CPI) fluctuates by more than 20 percent compared to the time when the law takes effect or the time of adjusting the latest family allowances, the Government submits to the National Assembly Standing Committee adjust the family allowances prescribed in this Clause in accordance with the fluctuation of prices to apply for the following tax period.

Recently, the Ministry of Finance proposed raising the family allowances, due to the fluctuation of the economy, the CPI from July 1, 2013 to the end of December 2019 was 123.2 percent (up 23.2 percent). To ensure consistency with the socio-economic situation, and the fluctuation of the price index, the adjustment is necessary at the present time. In the plan, the Ministry of Finance stated that adjusting the reduction for the taxpayer would be 11 million dong per month, by the current reduction of 9 million dong multiplied the CPI increase of 1,232 percent. Accordingly, each dependent will be offered a deduction of4.4 million dong per month instead of the current level of 3.6 million dong. With this option, the new family allowances will reduce the payable personal income tax for all taxpayers, ensuring to match the fluctuations of the consumer price index.

Sharing this proposal, Deputy Minister of Finance Vu Thi Mai said all agencies and people must comply with tax laws. The Personal Income Tax Law No. 26/2012/QH13 stipulates the family allowances should be adjusted if the CPI fluctuates is above 20 percent, so in the course of tax administration, the Ministry of Finance regularly directs functional units to update the CPI. Therefore, as soon as the General Department of Statistics provided the CPI increase of 18.11 percent at the end of June 2019,and increase of 23.2 percent, by the end of December 2019. The Ministry of Finance immediately started building this draft to submit timely to the Government and the National Assembly Standing Committee for consideration.

If it is approved by the National Assembly Standing Committee, the new family allowances will be applied for the tax period of 2020. Cases of temporary tax payment based on family allowances of 9 million dong per month for taxpayer and 3.6 million dong per month for each dependent will be determined the amount of payable personal income tax at the new family allowances when finalising the personal income tax in 2020 at the end of March, 2021.

Budget deficit of 10,300 billion dong

The adjustment to increase the level of family allowances will reduce difficulties for taxpayers in the context of price and inflation increase compared to 2013. The payable tax will be reduced for all taxpayers, the reduction of the payable tax by the group of taxpayers at the low tax level will be higher than the taxpayers at the high tax level. The calculation can see that, according to the current regulations, people with income up to 15 million dong per month (with one dependent) must pay tax at 120,000 dong per month (0.8 percent of income), according to the new reduction they must not pay tax. Taxpayers earning up to20 million dong per month (with one dependent) in accordance with current regulations pay personal income tax of 490,000 dong per month (equivalent to 2.5 percent of income), according to the new reduction, they must pay personal income tax of 230,000 dong per month (1.2 percent of income), reducing more than 48 percent of the payable tax compared to the current level. For high-level taxpayers, for example, an income of 70 million per month (with one dependent), currently payable tax is 11,370,000 dong per month (16.2 percent of income),under the new family allowances, the payable tax amount is10,530,000 dong (15 percent of income), reducing about 7 percent of the payable tax amount compared to the current one. This can be good news for workers.

For society, the increase of family allowances will ensure the implementation of reasonable and equitable encouragement policy objectives, contributing to improving the life of taxpayers, creating incentives for all individuals to work, produce and do business to increase income and enrich legitimately; ensure a simple, clear and transparent policy, promote administrative reform, improve the efficiency of tax collection management, and compliance with tax laws. The increase in family allowances also contributes to reasonable regulation of income, contributes to the implementation of social justice, and limits the gap between rich and poor. This is expected to bring a positive economic effect because adjusting the increase in family allowances leading to reduction in personal income tax liability or increase in usable income(income after tax) of individuals, stimulating an increase in household spending, increasing social consumption, and contributing to economic growth. However, the degree of impact on economic growth is also related to the reduction of Government spending due to the reduction of budget revenue from personal income tax.

This adjustment is positive for individuals and society but will increase the burden on the governing agencies. According to data on the centralised tax system in 2019, the number of personal income taxpayers from salaries and wages reached 6.89 million with total State budget revenue of more than79,219 billion VND.If the expected reduction of11 million dong per month is applied to the taxpayerand4.4 million dong per month for each dependent, a majority of first-class taxpayers will not pay tax, similarly, the taxpayers at the remaining tax levels are reduced tax, thereby the budget revenue is expected to reduce about 68,921 billion dong. So, with the above-mentioned family allowance increasing, the number of one-year personal income tax reduction is about 10,300 billion dong,(equivalent to about 13 percent of the budget revenue from the personal income tax in 2019).

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The Ministry of Finance continues to listen to the opinions of individuals and organisations to complete the official draft to submit to the Government and submit to the National Assembly Standing Committee.