‘Slow adjustment of family cuts increases people’s tax burden’

KPMG is a provider of consulting and compliance services for personal income tax, social insurance and immigration of foreign workers. This public accounting firm also participates in providing advice on tax policy for governments and tax authorities in several countries.

Share with VnExpressMs. Andrea Godfrey, Executive Member, Head of KPMG Vietnam’s personal income tax consulting and compliance department, said that a number of provisions in the Personal Income Tax Law are no longer relevant.

– The deduction for family circumstances when calculating the personal income tax of Vietnamese employees is adjusted for the growth rate of the consumer price index (CPI), i.e. when the CPI increases by 20%. How would you rate this customization facility?

– In general, it makes sense to determine the family cut according to the CPI growth rate. CPI is still widely used, as a factor to consider taxation policies in countries, including taxable income reduction policies, tax rates… The CPI is related to the ability to consume, and so are factors that affect the actual tax rate and after-tax income of each individual. individual.

However, the problem here is how to properly link the CPI with tax policy.

Currently, the Personal Income Tax Act stipulates that when the CPI increases by 20%, the Government will leave it to the Standing Committee of the National Assembly to adjust the withholding for family circumstances. This provision has shown some shortcomings.

Since this law was enacted in 2007, family deductions have been adjusted twice. The first time in 2013 and the second in 2020. So, on average, about 6 to 7 years, family deductions are only adjusted once. If so, in my opinion, it does not reflect timely changes in people’s cost of living.

The time between adjustment is too long and does not keep pace with the growth of people’s real spending, increasing their tax burden and reducing their real income in the midst of fluctuating prices.

To address this, I think it might be possible to consider lowering the CPI increase as the basis for family cuts, for example, taking 5-10% fluctuations instead of the current 20% for timely adjustments and accurately reflecting consumption levels as well as people’s real after-tax residual income.

Current family deductions are 15.4 million (including 11 million individual deductions and 4.4 million dependents deductions). Compared to the median income of 6.6 million salaried workers, the family cuts seem reasonable, as they are already higher than the average income.

But this number does not represent the majority of wage earners in urban areas with incomes nearly 1.6 times higher than in rural areas – who are and will continue to be major contributors to income taxes.

Moreover, with the aim of making Vietnam a developed country, with modern industry, high middle income in 2030 and high income in 2045, it is necessary to have a roadmap for adjusting family cuts. in increasing the income of citizens.

– How to determine the current deduction for dependents is to take 40% of the withholding of the Taxpayer’s own family. This level was criticized for being too low. How does he rate?

– The actual consumption rate of the dependents is almost the same as that of the taxpayer, especially for expenditures such as education, health care, food, living… In the current context, the reduction in the dependent reduction rate is only 40% of the taxpayer, which is unreasonable and must be adjusted accordingly. higher percentage.

In my opinion, the increase or decrease in dependent deductions can be determined as a fixed increase or percentage of the family deduction for the taxpayer himself.

However, the amount of tax saved from family deductions must be able to cover the dependents’ living expenses, thereby showing the true meaning of family deductions. Regional minimum wages can be a useful reference for each individual’s basic living needs.

– What is the international experience for determining the level of family reduction?

– In the world, the reduction of taxable income can be arranged at a fixed rate, by reducing the actual costs incurred with accompanying documents such as medical expenses, education, can also be deducted as a percentage of income, with cash assistance for dependents or a combination of the above.

In Vietnam, the habit of spending cash is still common and it is inconvenient to keep documents for personal income tax purposes. Implementing a fixed deduction will help simplify calculations and reduce administrative procedures for taxpayers.

However, legislators need to consider the method of calculating the fixed rate and how to adjust it periodically to ensure tax revenue for the state budget without adding to the tax burden for individuals.

– Apart from the current deductions for family circumstances, what are your suggestions for determining current dependents?

– Determination of current dependents is mainly based on three criteria: relationship with taxpayers, ability to work to generate income (eg, school-age children who have not entered the labor market, parents) above working/retired age, dependents of working age but disabled. ..) and the level of income of dependents.

In general, the above criteria are basic and appropriate. However, the third criterion of income of less than 1 million VND per month for each dependent is too low. With family background deductions of 4.4 million a month, the requirement to be recognized as a dependent should also be increased to broaden the scope of withholding for taxpayers.

Compared to the regional minimum wage as mentioned, a monthly income of one million dong is not enough to cover a person’s life. For adjustment, legislators may consider taking the regional minimum wage as the reference number.

Another problem is that some tax authorities now require a written certification from the local government of dependent income in family withholding applications.

In my opinion, this does not make sense because local governments do not have the function, authority and capacity to certify the income of citizens. To avoid such occurrences, the revised law should clearly stipulate that dependent income certification is self-declared and self-responsible, consistent with the current self-declaration and self-payment of individual income tax principles.

– What other suggestions do you have for tax policies for permanent employees?

– In addition to determining the criteria for determining the level of family deduction, the rate of reduction of family circumstances and the condition of the income level of dependents, the Ministry of Finance may consider extending the taxable income limit between different countries, tax rates or lowering tax rates. tax rates to reduce the tax burden for low- and middle-income wage earners.

Tax collection should be aimed at middle and high income people, improve compliance in tax reporting and payment to help increase the state budget.

Quynh Trang

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