Ministry of Finance must balance taxes and revenue

(SGI) - The prices of most essential items have been constantly escalating over the years, but the provisions on family deductions in the Law on Personal Income Tax have remained unchanged since July 2020. 
Illustrative photo.
Illustrative photo.

In a conversation with Saigon Investment, Lawyer Nguyễn Đức Nghĩa, Deputy Director of the SME Support Center under the Ho Chi Minh City Business Association, discussed what changes need to be made in this important issue.

JOURNALIST: - Sir, what is your opinion about the family deduction in the Law on Personal Income Tax that is no longer relevant in the context of the current skyrocketing of prices of most essential commodities?

Lawyer NGUYỄN ĐỨC NGHĨA: - According to my assessment, the regulation on this family deduction right at the time of July 2020 was not appropriate. At that time, we recommended that the deduction for taxpayers be VND 14 mln per month and for dependents much higher. Specifically, it is about 70% of the employee's deduction, but the level of 30% according to the Law is too little.

According to the current standards of living, VND 11 mln is not enough to live in big cities like Ho Chi Minh City or Hanoi. And yet, for dependents like students, the cost of eating and studying is also higher than VND 4.4 mln per month. Similarly for the elderly, the cost of living is also not low. Therefore, the deduction for dependents is no longer appropriate. In addition, after the Covid-19 pandemic, along with many fluctuations in the world situation such as the supply chain disruption, and the conflict between Russia and Ukraine, the commodity prices have now skyrocketed even more. Therefore, the provisions on family deductions under the Law on Personal Income Tax need to be recalculated and reassessed.

Hence the question arises as to how to calculate accordingly and not edit much. There is an opinion that the tax deduction should be increased to VND 17 mln per month. In my opinion, this time we should not give an absolute number, but it is time for us to rely on a reasonable basis to calculate the family deduction, which is to apply the regional minimum wage. Then there will be a solid legal basis and will not need to be changed every year.

In addition, the Law should also reduce expenses related to re-employment of the labor force, not only the cost of social insurance, health insurance, unemployment insurance, charity contributions, as at present. After deducting all these amounts, the Law on PIT can be calculated. It has to be said again and again that employees expect a lot of deductions, but the State expects to be able to collect better taxes also. Therefore, a harmonious solution in the current context is very important to reach.

- Sir, if the PIT is reduced from salaries and wages, the beneficiaries will mainly fall into the high-income group. What do you think about this fact? Can we learn how to increase the PIT of high-income people by increasing the tax on the rich like Singapore is doing?

- In fact, all provisions of the law are aimed at fairness. It is not correct to think that the PIT reduction will help the beneficiaries that are high-income earners which is incorrect. Because we do not yet clearly define what is high income. However, having up to seven levels of PIT calculation under the current law is quite a lot and the gap between some steps is too wide, increasing the amount of tax payable. Therefore, if possible, tax levels should be reduced from VND 7 mln to VND 5 mln and increase the gap between these levels even more.

As for the story of Singapore, according to the information I know, this country will increase the PIT to 23% for people with income from 500,000 Singapore dollars (SGD) to SGD 1 million and will increase to 24%, instead of 22% now, for people with income over SGD 1 million. The property tax will also increase to 36% in 2024, from 20% on unclaimed property, and up to 32%, from 16%, on owner-occupied property. This is a good way when the rich contribute more to society, and which can go to those in need.

However, if we want to learn, we also need to redefine the income level of people who are said to have a high income or are considered rich. Currently, according to level seven of the Law on Personal Income Tax, on over VND 80 mln we collect 35% of tax, this level is considered quite high. Also, over VND 80 mln is difficult to identify as rich. Hence the question arises if we can raise the specific level to an income of VND 200 mln per month, and from there can we impose a high tax rate or not. All these questions must be carefully calculated before finding the answer.

- Sir, after the Covid-19 pandemic, both workers and businesses are facing great difficulties, but it seems that only businesses have received support policies related to taxes, and interest rates, but the employees have not. In your opinion, should PIT exempt or reduce for employees in the last six months of the year?

- It is true that after the Covid-19 pandemic, many government policies have been introduced to support businesses to restore production and business activities, such as reducing CIT, and the most recent policy is to support interest rate loans of 2%. As for workers after the Covid-19 pandemic there are mainly social security policies. The unemployed and business households receive support, but only for a short time. In general, workers are still quite disadvantaged, and they are looking forward to receiving support related to PIT. Therefore, if it can be reduced by six months or even more, it will bring a lot of joy to workers, helping them to go through a difficult period when commodity prices are climbing.

Looking back at the first six months of the year, the country's personal income tax revenue reached VND 88,084 bln. Particularly in Ho Chi Minh City, personal income tax revenue in the first six months of this year also increased by 28.2% over the same period last year. This figure contrasts with many difficulties that workers are facing. This harmonious and balanced calculation is what the Ministry of Finance needs to pay attention to right now.

- Thank you very much.

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