Family tax deduction rate under review: MoF

Given the evolving economic landscape and changes in living standards, The Ministry of Finance is conducting a comprehensive review and assessment of the Personal Income Tax Law, which includes the consideration of family circumstance deductions.

The Ministry of Finance (MoF) is conducting a comprehensive review and assessment of the Personal Income Tax Law, which includes a closer look at family circumstance deductions, to report to the Government, the National Assembly (NA) Standing Committee and the NA for potential amendments.

The review was mentioned in the MoF’s written response to recommendations from voters in six provinces and cities, including Hà Nội, HCM City, Bắc Kạn, Đồng Nai, Lạng Sơn and Nghệ An.

This step is considered by policymakers as a reasonable and timely one, given that the base salary has risen by 30 per cent as of July 1, leading to an increase in the total income of civil servants and officials.

According to the current Personal Income Tax Law, individuals are allowed to deduct social insurance, health insurance, unemployment insurance and occupational liability insurance for certain professions that are subject to compulsory insurance.

Additional deductions are available for family circumstances, charitable contributions, allowances and subsidies as outlined in the law.

The remaining amount is then used as the basis for calculating personal income tax.

The 2023 Survey on Living Standards released by the General Statistics Office under the Ministry of Planning and Investment showed that Việt Nam’s average monthly income per capita stands at VNĐ4.96 million (US$199).

The highest income group (including the top 20 per cent) had an average monthly income of VNĐ10.86 million per person.

Meanwhile, current deductions for taxpayers can add up to VNĐ11 million per person per month, or over twice the average income per capita. This number is much higher than the typical range applied by other countries, in which deductions range from 0.5 to 1 times the average income.

The deduction for dependents is also VNĐ4.4 million per month, which is nearly equivalent to the current average income per capita.

With these deductions, individuals earning a monthly salary of VNĐ17 million (with one dependent) or VNĐ22 million (with two dependents) might not have to pay any personal income tax after deducting social insurance, health insurance and unemployment insurance.

However, the MoF maintains that adjusting the family deduction rates in tax payments is not appropriate at the moment due to the Consumer Price Index (CPI) fluctuating less than 20 per cent since 2020.

"In the case that the CPI fluctuates by over 20 per cent compared to the time the law took effect or the most recent adjustment to the family circumstance deduction, the Government will submit a proposal to the NA Standing Committee. It aims to adjust the deduction level in line with price fluctuations to be applied in the subsequent tax period," the MoF emphasised, referring to Personal Income Tax Law No. 26/2012/QH13.

According to the MoF, the implementation of this tax policy plays an important role in redistribution policies.

Along with other revenue sources, collection from personal income tax has created a State budget fund to meet many of the country's needs for investing in development, national security and social welfare programmes aimed at poverty reduction.