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Ministry considers changes to personal income tax
The Ministry of Finance is collecting public opinion on the rates of personal income taxes so that they can be adjusted to suit the current economic situation. The survey will be completed by the end of March.
The Law on Personal Income Tax (PIT) was drawn up by the Government in 2005 to replace the Ordinance on High Income Earners. It was approved by the National Assembly in 2007 and came into effect on January 1, 2009.
The law sets a taxable income threshold at VND4 million (US$200) per month and allows taxpayers to deduct VND1.6 million ($80) for each dependant.
Complaints about current personal income rates have been on the rise since last November, making the question of changing the law a hot issue, especially after the Consumer Price Index (CPI) reached 11.75 per cent last year.
One staff member at a HCM City company said VND4 million a month could not satisfy a person's basic needs.
He said he normally spends VND2 million on rent, food, electricity, water, transport, phone and other needs. "How can we live on the other two million?" he asked.
Many workers have also complained that the VND500,000 monthly income limit for dependants was far too low.
"My mother gets a pension of less than VND1 million ($50) each month and this is not enough for her daily life. But she is not considered a dependent, as she ‘earns' more than VND500,000 per month," he said.
Nguyen Minh Phong, an expert from the Ha Noi Socio-economic Development Research Institute, said that the taxable income threshold and deductions for dependants was unreasonable and out-of-date when taking into account the sharp increases in the CPI.
Phong said the current price levels of all goods and services meant that the rate of VND4 million per month was not enough for a person to cover all living costs, thus the threshold must be lifted.
He also said that the deduction for dependants should be three times higher than the basic salary, rather than standing at VND1.6 million for each dependent. The current basic salary now is VND730,000.
Nguyen Thi Kim Tuyen, Deputy Chairwoman of the Viet Nam Accounting and Auditing Association (VAAA) said if lawmakers regulated an absolute figure of the taxable threshold, then the figure always couldn't catch up with the increase of basic salary and CPI.
She said that when the threshold was set at VND4 million and the basic salary was VND540,000, it meant the threshold was eight times higher than the basic salary.
This year, the basic salary was expected to reach VND830,000, therefore, the law should be regulated so that the threshold was from eight to 10 times higher than the basic salary.
Lawyer Tran Xoa from HCM City-based Minh Dang Quang law firm said if the proposal was approved, the National Assembly would not have to keep on amending laws. Tax thresholds would be updated regularly, thus preventing any losses to workers.
The lawyer also said that the gaps between the tax rates were now too narrow and that it was necessary to widen them in order to ease the burden on taxpayers.
The current PIT Law has seven tax levels. When monthly income taxable is less than VND5 million per month, the PIT rate is 5 per cent. When the income is between VND5 million and VND10 million ($250-$500), the tax rate goes up to 10 per cent. The highest rate is 35 per cent for monthly taxable income of over VND80 million ($4,000).
He recommended that the tax rate should be 10 per cent when monthly taxable income was between VND5 million to 30 million ($250-$1,500), 20 per cent for those earning VND30 million to VND60 million ($1,500-$3,000), and 30 per cent for those on more than VND60 million.
VAAA Deputy Chairman Mai Thanh Tong recommended the law should be amended to cover all income sources of taxpayers. He said that at present, the Government was able to collect tax from only officials and cadres of companies and State agencies, but it was still difficult to know the real income of freelancers, such as singers.
Duong Thi Ninh, Head of the Income Tax Policy Division under the Ministry of Finance's Tax Policy Department, said the department had asked enterprises and local tax authorities to report all their difficulties while implementing the Personal Income Tax Law.
Two plans are being considered by the Ministry of Finance – either to increase the threshold or to reduce the lowest tariff from 5 per cent to 1 or 2 per cent, and the highest tariff from 35 per cent to 32 or 30 per cent.
According to the General Taxation Department, about seven million people are subject to personal income tax. The State budget collects VND10 trillion ($500 million) of personal income tax per year.
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