Vietnam's proposed increase in minimum taxable income ‘thoughtless’

In its latest proposal, the Ministry of Finance has suggested raising the minimum taxable personal income from VND9 million ($389) per month to VND11 million ($476) per month, while the tax reduction for each of the taxpayer's dependents would also be increased from VND3.6 million ($156) per month to VND4.4 million ($190) per month.

These proposed values were calculated based on data provided by the General Statistics Office, which showed that the Consumer Price Index (CPI) had increased by 23.2 percent between July 2013 and December last year.

Under the current taxation regime, a person earning below VND15 million ($645.23) a month would have to pay VND120,000 ($5.16) in personal income tax, but would have to pay nothing under the new proposal.

Those earning below VND20 million ($860.30) with a dependent are also entitled to a 48 percent reduction on tax payable, while those earning above this threshold gets a 7 percent reduction.

Some experts have found the proposed values too low and unreasonable. Associate Professor Nguyen Khac Quoc Bao, head of the finance department at  the HCMC University of Economics, pointed out that the finance ministry has simply multiplied the old value of VND9 million by the 23-percent increase in CPI between 2013 and 2019 to reach the new threshold of VND11 million.

"This method is simple to the point of being cold and thoughtless," Bao said, stressing that this policy, which would affect the livelihoods of over 90 million people, had been calculated and planned in a way that was even simpler than a statistical problem for first year students.

"... the Finance Ministry wants the people's standard of living to stagnate, or even go backward, although, after 10 years, the fruits of economic growth have not been delivered to many people," he said, criticizing the ministry for focusing only on maximizing the amount of tax collected and violating the principle of fostering revenue streams.

Bao therefore suggested that instead of using the CPI growth rate, the country's GDP growth rate should be used to adjust the taxable income level as it reflects the per capita income growth as well.

He said the minimum taxable personal income should be adjusted yearly to better reflect reality.

Other experts have also said that the finance ministry’s proposal is inappropriate. Nguyen Van Hau, chairman of the Vietnam Lawyers' Commercial Arbitration Center (VLCAC), argued that under current regulations, the minimum taxable income and tax reduction for dependents would only be adjusted when the CPI growth exceeds 20 percent. He said a long-term perspective was lacking in the new proposal.

Furthermore, with the entire economy heavily affected by the novel coronavirus epidemic, people's current income cannot be used to calculate the income tax threshold values for this year and upcoming years.

"This new proposal is yet to be applied, but it already seems too outdated and inappropriate. Taxpayers will be the ones to suffer. This needs to be recalculated and rationalized so that it does not have to be amended again and again," Hau said.

At a government press conference Tuesday, Deputy  Finance Minister Vu Thi Mai said that the ministry’s proposed adjustment was consistent with price fluctuations, calculated based on CPI growth, as well as the Law on Personal Income Tax, which allows for an adjustment when CPI growth exceeds 20 percent from when the last minimum taxable income regulation had taken effect.

The number of taxpayers and dependents have been rising steadily each year, the Ministry of Finance said, adding that as of the end of 2019, there were 6.88 million income taxpayers who contributed over VND79.2 trillion ($3.41 billion) to state budget revenue. 

The ministry estimates that budget revenue from income tax would fall 13 percent to VND68.92 trillion ($2.96 billion) if the proposed increase in minimum taxable income is approved.