Vietnam's finance ministry tables conflicting proposals for personal income tax shake up

In a draft amendment to Vietnam's personal income tax (PIT) law, the Ministry of Finance has made two proposals that would either cut the state budget collection by VND1.3 trillion ($58.5 million) or increase it by VND500 billion ($22.5 million).

Under the first proposal, which would cut the state budget collection by VND1.3 trillion, the new threshold for PIT would increase to VND10 million ($441) per month from the current VND5 million.

People with incomes reaching VND20 million would have to pay tax of 15 percent instead of the current 20 percent.

However, the Ministry of Finance said the first proposal would benefit the rich more than the poor. For example, the proposal would cut the tax paid by individuals with an income of VND10 million by VND250,000 per month, but it would slash payments made by those with an income of VND30 million by VND850,000 and those with an income of VND80 million by VND650,000.

Under the second proposal, tax thresholds for people with incomes of VND10 million or less would remain unchanged. However, tax paid by people with monthly incomes of VND15 million-30 million would increase by VND250,000-400,000 per month. Those with monthly incomes of VND80 million would have to pay an additional VND650,000. The increases would raise state budget collection by an estimated VND500 billion each year, said the ministry.

Assessing the two proposals, economist Bui Quang Tin from Ho Chi Minh City said the second proposal had a negative impact on more taxpayers. Under the proposal, those with monthly incomes of VND10-40 million would pay a 20 percent PIT. The current tax policy levies a tax for people with monthly incomes of VND10-18 million of only 15 percent. A large percentage of employees in Vietnam earn VND10-18 million, so the proposal would create a heavier burden on more people, he said.

Deductions for dependents under the two proposals would remain unchanged at VND3.6 million per month.

Tin said the first proposal was better because it would be less painful for low tax threshold payers.