In its assessment of the revised Law on Personal Income Tax submitted to the ministry of justice, the ministry of finance acknowledged suggestions to tie personal deductions to regional minimum wages or to set higher deductions for urban areas due to higher living costs. However, the ministry disagrees with this approach.
The ministry of finance explained that the current personal and dependent deductions are fixed amounts based on general living standards, regardless of income, spending habits, or location.
"Both developed and developing countries typically apply a standard deduction across the board," the ministry cited.
The ministry also pointed out that the draft law exempts regional and relocation allowances from taxable income for individuals working in difficult areas to attract and support workers. Additionally, individuals facing hardship due to natural disasters, fires, accidents, or serious illnesses are eligible for tax reductions.
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Workers producing instant noodles at Colusa - Miliket Foodstuff Joint Stock Company, Ho Chi Minh City, 3/2025. Photo: Quynh Tran |
Workers producing instant noodles at Colusa - Miliket Foodstuff Joint Stock Company, Ho Chi Minh City, 3/2025. Photo: Quynh Tran
The current monthly personal deduction is 11 million VND and 4.4 million VND per dependent. This has been in effect since 7/2020. Taxable income is calculated after deducting insurance, personal and dependent allowances, and other benefits. These deduction amounts will be adjusted by authorities when the consumer price index (CPI) increases by more than 20%.
In the current draft, fixed deduction amounts are not stipulated in the law. Instead, the ministry of finance proposes giving the government the authority to set these amounts to ensure flexibility and responsiveness to economic and social conditions.
The ministry also proposes additional specific deductions for taxpayers, including healthcare and education expenses for themselves and their dependents. The scope and extent of these deductions will be carefully considered to maintain the effectiveness of personal income tax as an income regulation tool.
The ministry noted that most countries offer various forms of personal deductions, usually covering three categories: a general deduction for the taxpayer, deductions for dependents (children, spouse, parents), and deductions for healthcare and education expenses.
Some countries, such as Thailand, Indonesia, and Malaysia, limit the number of claimable dependents, while others, like the US and the UK, do not. Some countries, like China, offer a combined deduction for the taxpayer and dependents instead of separate amounts.
The scale of these deductions varies depending on each country's approach to personal income tax incentives and is not typically based on a specific formula.
Most countries set the personal deduction at 0.5-1.5 times the average per capita income. Including dependent deductions, the total often reaches 1-2 times the average per capita income.
Personal income tax is the third-largest revenue source in the tax system, after value-added tax (VAT) and corporate income tax. Last year, total state budget revenue exceeded 2 quadrillion VND for the first time, with personal income tax estimated at 189 trillion VND, a 20% increase from the previous year. This represents over 9.3% of total budget revenue, up from 5.3% in 2011.
The government recognizes personal income tax as a crucial tool for income redistribution and social equity. Along with other revenue sources, personal income tax funds investment, national defense, social security, and poverty reduction programs.
"Therefore, personal income tax policies must consider the taxpayer's circumstances, the socio-economic context, and the average living standards and income of workers," the ministry of finance stated.
The revised Law on Personal Income Tax is expected to be submitted to the National Assembly for review and approval in the October session.
Phuong Dung
