New family circumstance-based deduction level, disposable income of the people to increase

	About 1 million people won’t have to pay personal income tax
	Raising family circumstances-based reduction level must comply with current law
	Increase family circumstance deduction level to VND 11 million

Truong Ba Tuan, Vice President of the National Institution for Vietnam Finance (under the Ministry of Finance

The Standing Committee of the National Assembly has approved the Government's proposal to raise the personal income tax threshold from VND9 million to VND11 million per month, for dependents from VND 3.6 million to VND 4.4 million per month.What is your opinion on this issue?

Firstly, it is necessary to affirm that the Standing Committee of the National Assembly’s approval on the Government's proposal adjusting family circumstance-based deduction level is to comply with the National Assembly’s Law No.26/2012/QH13 dated November 22, 2020 amending and supplementing articles of the Law on Personal Income Tax No. 04/2007/QH12, effective from July 1, 2013. If the consumer price index (CPI) fluctuates by more than 20% compared to the effective date of this law or the latest adjustment time of the family circumstance-based deduction level, the Government shall propose the National Assembly Standing Committee adjust this level in line with the fluctuation of the CPI to apply for the next tax term.

Since Law No. 26/2012/QH13 took effect until the end of December 2019, the CPI increased 23.2%. The adjustment of the family circumstance-based deduction level for taxpayers from VND9 million to VND11 million per month, for dependents from VND 3.6 million to VND 4.4 million per month is equivalent to the increase of CPI in this period, ensuring compliance with the provisions of Law No. 26/2012/QH13, promptly reflecting changes in living expenses of taxpayers from July 2013 up to now.

For the new family circumstance-based deduction level, the disposable income of people will increase, contributing to stimulating household spending, social consumption and improving the lives of people.

Is this adjustment consistent with the context of economic development and social life of people?

In the current context, I think this increase in family circumstance-based deduction level is appropriate, ensuring the interests of the State and taxpayers. For the new family circumstance-based deduction level, those with lower incomes will enjoy more benefits. Of which, a large proportion of personal income tax payers at level 1 (accounting for about 44% of personal income taxpayers) will be subject to non-taxpayers. Taxpayers with income of less than VND 15 million per month (VND 180 million/year) with dependents will not have to pay the tax.

Meanwhile, according to the General Statistics of Vietnam, the Vietnam’s GDP as of the end of 2019 was about VND 63 million/person/year, the average wage of laborers was 6-7 million per month. Thus, it can be seen that, after being adjusted, the family circumstance-based deduction level is not low compared with current living standard levels. In addition, it should be emphasized that with the family circumstance-based deduction level of VND 11 million/month, it does not mean taxpayers only spend about VND 11 million/month, this is only deductible before calculating PIT. For example, if taxpayers with an income of VND 20 million/month have two dependents, they only must pay VND 10,000 of personal income tax, equivalent to 0.05% of their income, 99.95% of the remaining income is the disposable income of taxpayers.

The increase in family circumstance-based deduction level will be applied for the tax term 2020. Amid the economy being affected by Covid-19, what is the meaning of this adjustment for taxpayers?

An important point in the decision to adjust the family circumstance-based deduction level is that the new level will be applied for the tax term 2020. In other words, all personal income taxpayers will have their tax obligations reduced this year. According to the law on tax administration, if taxpayers temporarily paid PIT according to the former family circumstance-based deduction level (VND 9 million/month for tax payers and VND 3.6 million for dependents), they shall be assessed the PIT payable according to the new level when implementing PIT finalisation in 2020, ensuring the rights oftaxpayers in accordance with the Law No. 26/2012 / QH13.

The impacts of Covid-19 have reduced the State revenue and increased State budget spending on disease prevention and control, supporting people and businesses hit by the pandemic. The increase in family circumstance-based deduction level showsthe prompt assistant of the State for taxpayers and businesses.

According to the Ministry of Finance’s estimation, with this adjustment of family circumstance-based deduction level, State budget revenue will reduce by about VND 10,300 billion /year, equivalent to about 13% of PIT revenue in 2019. This will be added to theincome of people and help them restore difficulties caused by Covid-19.

The PIT is one of the most important taxes in Vietnam's tax system. In the near future, how should the PIT policy be adjusted to fit the current context?

In recent years, the implementation of the PIT policy has made important contributions to restructuring the State budget revenue in a more sustainable manner, creating favourable conditions for the State to mobilise income of a part of taxpayers to supplement to the State budget to better meet the tasks of spending on economic development, social welfare and poverty reduction.

However, along with the development of the economy, science and technology as well as the impact of integration, many new economic activities and new business models have cropped up. Accordingly, in the near future , it is necessary to offer a plan to evaluate the implementation of the current Law on Personal Income Tax, reporting to the Government to submit to the National Assembly for consideration and amendment and supplement of this law, ensuring it is in line with the overall reform process of the tax policy system.

The Ministry of Finance is reviewing and evaluating the implementation results of the strategy on tax system reform for 2011-2020, thereby, studying and developing a new strategy for 2021-2030 in association with institutionalisation of major guidelines and orientations of the Party and the State related to the financial-budget field for the next fiveyears and 10 years. These will be important bases for researching and reviewing amendments to relevant tax laws, including the PIT policy.