Raising deduction for family circumstance will reduce difficulties for taxpayers

The Ministry of Finance has just finalized a draft Resolution of the Standing Committee of the National Assembly on adjusting the deduction for the family circumstance of Personal Income Tax. Accordingly, the deduction for family circumstances for taxpayers increases from 9 million VND to 11 million VND per month, dependents from 3.6 million VND to 4.4 million VND per month. How do you evaluate this proposal of the Ministry of Finance?

In my opinion, the proposed deduction for the family circumstances is in accordance with the law. According to Article 19 of the Law on Personal Income Tax, when the consumer price index (CPI) fluctuates above 20% compared to the time when the Law takes effect or the time of adjusting the latest family allowances, the Government submits the Standing Committee of the National Assembly adjusts the family allowances in accordance with price fluctuations to apply for the next tax period.

Based on calculations made by the General Statistics Office, the CPI at the end of December 2019 compared to July 1, 2013 was 123.2%, up 23.2%. So this proposal is lawful and in line with current socio-economic conditions.

In your opinion, is this adjustment reasonable?

The Ministry of Finance proposes to increase the deduction for family circumstances for the taxpayer to VND 11 million per month. The above-mentioned proposal is based on the following calculation: 1,232 multiply 9 million dong equal 11,088 million dong, rounded to 11 million dong. Corresponding to each dependent is 4.4 million per month, calculated as below: 1,232 multiply 3.6 million VND equal 4.4352 million VND, rounded to 4.4 million VND.

In my opinion, this calculation is reasonable. Because the adjustment to increase the above-mentioned deduction for family circumstances will reduce difficulties for taxpayers in the situation of prices and inflation increasing compared to 2013. The amount of tax payable will be reduced for all taxpayers, in which the reduction of the tax payable by the group of taxpayers at the lower tax level will be higher than the taxpayers at the high tax level.

The purpose of the Ministry of Finance increases and amends deduction for family circumstances is to ensure the implementation of reasonable mobilization policy. How do you evaluate this?

It can be affirmed that this new deduction has been planned for the future as below:

First, the new family allowances reflect the true family allowances to ensure that after paying taxes, taxpayers have income to cover dailylife. Accordingly, the deduction taxpayer is equal to about 2.1 times of per capita income. This amendment ensures a plan for the future when prices fluctuate and income increases but ensuring tax deduction equal to or higher than per capita income. According to the common practice of countries, the deduction rate for taxpayers is usually about 0.6 to 1.5 times per capita income.

Second, the increase or decrease in proportion to the CPI does not mean the increase or decrease to offset the slippage for the past, this is an increase to suit the future.

To understand this issue, it should be noted that, the last adjustment was applied from July 1, 2013, the deduction taxpayer has increased from 4 million VND per month to 9 million VND per month. The adjustment in 2013 is to ensure the compatibility between the deduction and the income of the population in the period after 2013. So, considering the current income level, the deduction shall be reduced 9 million VND per month is suitable. The adjustment to 11 million VND per month is to ensure the suitability for the coming years.

Thanks Sir!