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Reductions for family circumstances are not in accordance with the community’s standard of living

People’s incomes and expenditures increased, but cuts for family circumstances, on which personal income tax is calculated, have only been adjusted twice in the last 15 years.

Currently, a person with a total income below the family deduction (11 million VND) does not need to pay taxes. If raising 1 dependent (such as a child or parent), the family deduction will increase by 15.4 million (that is, each dependent will be reduced by 4.4 million VND).

But Ms. Hoa (HCMC) – a taxpayer who works as an office worker and has been married for several years – wonders: “Land and living expenses are both going up. I can’t raise children with me. The way my parents raised me ten years ago , I don’t even think about how I can earn 4.4 million a month to raise a child to attend elementary school with enough money, from money for food, milk, medicine and so on. college”.

He is one of 25 million wage earners who pay personal income taxes. For a salaried taxpayer like him, the withholding of family background is an important basis for determining the level of income subject to personal income tax.

But this important basis was only adjusted twice (in 2013 and 2020) during the 15 years from 2007, when the drafting agency calculated and promulgated the Law on Personal Income Tax.

In other words, every 6-7 years on average, family deductions are only adjusted once while the actual level of public spending continues to increase from year to year.

The first Personal Income Tax Law came into effect in 2009 but was formulated and discussed many years ago and was promulgated in November 2007. In the opinion of experts, it will take several years from the law being formulated until the regulation comes into force, so the number of family cuts can become outdated when legislators have not taken into account the factors of change. .

If 2007 is used as the base year – the date of promulgation of this Law, VnExpress try to calculate how changes in family cuts over the years compare to growth rates: the Consumer Price Index (CPI); Expenditures per capita and regional minimum wages over the years. Where the average spending level is taken according to the base year 2008 (every two years) and the minimum salary in 2009 – the first year this rule is applied.

As a result, the growth curve for household reductions (yellow) – the basis for determining how much or little taxpayers pay – is often lower than the average increase in people’s spending and regional minimum wage – The number criticized by many people is too low.

According to the tax agency, “family deduction” is understood as the minimum cost of family deductions to ensure the minimum living requirements of individuals and their dependents. The basis of the adjustment is now based on the growth rate of the consumer price index (CPI) – an index that represents price inflation.

But with this calculation, the rate of increase and decrease except for family circumstances still does not match the actual expenditure and minimum wage of people.

If in 2008, the average goal of each person was about 792,000 VND, by 2020, this number will increase by 3.6 times to almost 2.9 million, according to a survey by the General Statistics Office (GSO). The GSO public spending survey is conducted every two years, regularly for the last 20 years. Specifically, the results for 2020 are based on a survey of nearly 47,000 households in representative communes and neighborhoods across the country.

While the level of expenditure per person is 4-5 times higher than in 2007, the reduction for family circumstances is less than three times.

Compared to the minimum wage growth rate, the family adjustment rate also becomes obsolete. For example, the minimum wage in region 1 has equaled at least 5.5 times so far, the family cut is only 2.8 times.

The results of the comparison above partially explain the assessment that the calculation of the level of family reduction in the Personal Income Tax Law is “a lot backward” by experts and taxpayers themselves.

According to many experts, family cuts should not just be adjusted to the CPI growth rate as has happened in the past.

Talk with VnExpress viewpoint Andrea Godfrey – Executive member, in charge of KPMG Vietnam’s personal income tax consulting and compliance department – commented that the deductions were not timely reflecting the changing cost of living for KPMG Vietnam people.

The basis for determining the reduction in family conditions of 11 million dong and 4.4 million dong from 2020 is calculated by multiplying the reduction in the old family situation by the inflation rate over the years. Deduction adjustments for family circumstances are only made when the cumulative CPI fluctuation over the years is more than 20%.

“This regulation shows some shortcomings. The time between adjustments is too long and does not keep pace with the increase in people’s real spending, increasing the tax burden and reducing people’s real income in the context of price volatility,” said Andrea.

To address this, Ms. Andrea suggests taking the CPI fluctuating threshold of 5-10% rather than the current 20% as the basis for adjustment, helping to closely and immediately reflect people’s spending levels.

Another suggestion from experts is to adjust the rate of family cuts not only based on a measure of inflation, but also pay attention to changes in people’s quality of life over time.

Association

“While Vietnam’s economy continues to grow and social life improves, is it possible for people’s standard of living to stay the same for years?” asked Bao.

According to this expert advice, family cuts should be adjusted not only based on inflation but also need to take into account other factors, such as the annual GDP growth rate. If calculated according to the annual GDP growth rate, the appropriate family cut according to Mr Bao should now be equivalent to 15.8 million VND instead of the current 11 million VND.

In addition, instead of setting family deductions as a difficult level, this expert suggests a solution to define family deductions as a variable that can be changed annually based on input factors.

However, the tax industry also has its own arguments. Representatives of the Small, Medium, Household and Individual Taxation Service (Department of General Taxation) said that the use of GDP growth rates does not reflect the true nature of public or household spending.

For countries that implement a fixed tax such as Vietnam (which does not yet regulate cash flows of people’s expenses), they also do not adjust for annual family deductions whose regulations apply for a certain period, the General Department of Taxation said.

Using the CPI growth rate to calculate family reductions is appropriate, according to this position, because it represents a basket of Vietnamese goods and expenses, as appropriate. The approach to calculating personal income tax, not only in Vietnam but also in other countries, is also based on people’s spending, not income.

Meanwhile, experts say that the calculation of the increase in spending is not identical with the growth rate of the CPI because in the CPI basket there may be items that are not included in the public’s routine spending.

In the same vein, the rate of adjustment of deductions for family circumstances is “still lagging”, but an expert with a long career in the tax industry asks the question “why is it slow to adjust”. And according to him, it should be noted that the Ministry of Finance must maintain a balance between increasing the reduction in family conditions and reducing income from the state budget.

Each year, the budget collects tens of trillions of personal income taxes including taxes from employees. Tax revenue from wage earners accounts for almost 5% of total budget revenues and this number is actually growing every year, people’s incomes are increasing. Meanwhile, other revenues, such as import and export taxes, tend to be lower. As for the property tax, a tool for regulating high-income people, Vietnam has not been able to implement it for years.

The Ministry of Finance is Get an opinion on the amendments to the Personal Income Tax Act. To have objective data, as a basis for commenting on the current calculation of family deductions, VnExpress Take a quick survey of your monthly expenses – who pays taxes directly and how much you spend on feeding depends (such as child, father or mother). If there is more than 1 dependent, just enter the average expenditure for 1 dependent.

Quynh Trang

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