Necessary to adjust Law on Personal Income Tax

(SGI) - Many people have complaints against the Law on Personal Income Tax (PIT) since it was introduced in 2001. 
Illustrative photo.
Illustrative photo.

Now with the current situation and escalating prices of so many essential commodities there is a need to make amendments and adjustments to this Law to ensure badly needed equity around the country.

The Law on PIT is rather complicated because it affects a large number of people. It has also been considerably unfair on so many people in different areas of the country. Improvements have been made over the years, but now it is high time lawmakers resolve many deep lying issues and problems comprehensively.

Impracticalities in PIT

The biggest problem that the public and experts have talked about most has been the controversial calculation of PIT, especially reductions in PIT on workers and increases in amounts of financial support for dependents. The Ministry of Finance currently multiplies VND 9 mln by the CPI growth rate in 2019 compared with the rate in 2013, which is 23%. Then, the calculation results in VND 11 mln, which is the PIT imposed on a worker. Many people have criticized this way of calculation, saying it is not based on real life situations.

In theory, this way of calculation is in accordance with the law. Yet it is inappropriate and unsatisfactory in daily lives of a large number of people. The Law on Personal Income tax stipulates that the Government will submit a proposal to the National Assembly for an amendment when CPI grows over 20% compared with the rate when the Law on PIT came into effect, or the time of the latest amendment to the Law on PIT in terms of financial support for the dependents. Yet that would be too late, and it could cause great loss for numerous workers.

It should be noted that the Law on PIT is meant to be imposed on high-income individuals in an effort to minimize significant disparities in the distribution of income between individuals and narrow the gap between the rich and the poor as well as increase the national revenue. However, the current Law on PIT does not aim at this target. Basically, anyone with an income is very likely to declare their income and pay a PIT. If a low-income person has to pay a PIT, the law does not function satisfactorily.

Another controversy or even annoying problem now is the rate of reduction in a worker's taxable income to provide financial aid for a dependent. Specifically, the amount of financial aid for a dependent is VND4.4 mln per month if a worker earns a monthly income of VND 11 mln. But this regulation is applicable to everyone around the country, regardless of different situations of people in different regions. This way of calculation could cause problems for many people because worker salaries and wages are asked to be paid differently in four different regions, with significant differences in amounts.

Differences in areas

Theoretically, workers in different regions earning the same income should be allowed to spare different amounts so as to provide different amounts of financial support for the dependents. In remote areas, for instance, it could be fine for the financial support amount of VND 4.4 mln to be taken from workers with a monthly income of VND 11 mln.

However, the costs of living in urban areas are higher, making such an amount of financial support very hard for a dependent to live on. In fact, the tax policies in other countries are not applicable the same way to everyone around the country, partly because they can determine different citizen situations and withhold the income of individuals easily because they have developed a cashless network throughout the country.

In my opinion, the financial support amounts for the dependents are not yet based on the subsistence level, nor per capita income, nor the basic salaries or minimum wages of workers in different regions. Therefore, there could be complaints about any taxable personal income.

I do believe that the next amendment to the Law on PIT should clearly indicate the specific grounds on which sufficient amounts of financial aid for dependents are allowed. This means that lawmakers should introduce flexible articles and clauses that permit minimum fixed amounts of financial support for dependents like what is currently applicable, and also include essential expenses with compulsory bills and receipts to be presented to taxation agencies.