PIT is short of the mark

>> Opinions differ on personal tax threshold lift

Why has the MoF proposed a personal income tax threshold and dependent reduction levels that are 2.25 times more than current ones?

First, the consumer price index (CPI) had escalated in recent years (11.75 per cent in 2010 and 18.13 per cent in 2011); the CPI may be kept at below double-digit level in the ensuing years but it possibly may still stay high.

Second, the minimum monthly salary applied to administration agencies hiked from VND650,000 ($31) in 2009 to VND830,000 ($39.5) in 2011, then VND1.05 million ($50) in 2012. The benchmark is expected to further go up to VND1.5 million ($71) and VND1.8 million ($85) in 2014 and 2015, respectively.

Third, per capita average income rose from VND19.2 million ($915) per year in 2009 to VND28.5 million ($1,350) in 2011. In 2014, this figure could reach VND43.1-43.9 million ($2,050-$2,090).

Since the Personal Income Tax Law came into force the local economy was constantly in a fix, taking a bite in actual incomes of most parts of Vietnamese people.

In fact, except 2010 in the remaining years the National Assembly granted grade 1 personal income tax (PIT) exemption to aid individuals, so that actual PIT threshold in these years was VND9 million but not VND4 million ($190) as current PIT threshold.

These levels remain high compared to those in other regional countries. Isn’t that true?

Based on the gross domestic product (GDP) in 2011, current PIT threshold and dependent reduction equal 1.7-fold per capita average income. If the MoF’s proposal was green-lighted, the PIT threshold and dependent reduction levels would be 2.5-fold per capita average income in 2014. These levels are overly high compared to those in countries in the region and the world. However, given the fact that Vietnam’s per capita average income is far below that in the region these VND9 million PIT threshold and VND3.6 million dependent reduction are low.

It is said that to aid people the MoF should consider lifting up threshold level, and abolish some tax grade while extending the tax grades. Should we do so?

The MoF used to mull over this plan (plan 1), but it is impossible to materialise the plan at this time as it could cast a big dent to state coffers. Besides, this plan did not meet the target of maximally supporting taxpayers whereas plan 2 (hiking PIT threshold to VND9 million and dependent reduction to VND3.6 million) causes less impacts on state budget.

Would you shine further light on this?

In March 2012 the MoF set forth plan 1 - hiking PIT threshold to VND6 million ($286) and dependent reduction to VND2.4 million ($114) per person, in the meantime extending the tax grade and abolishing the top grade. With this plan, declining tax amount to the state budget would be the same as in the second plan (VND5.6 trillion or $266 million less in 2013 and VND13.350 trillion or $636 million less in 2014). This plan, however, does not concentrate in supporting the lowest income among taxpayers but chiefly support those with high incomes since the latter also enjoy higher threshold and dependent reduction levels and tax grade extension.

Thereby, the MoF opted for the second plan. Its advantage is that individuals in tax grade 1 will be exempted from paying tax; individuals in grade 2 and 3 will pay tax in grade 1 and 2 with corresponding tax levels of 5 and 10 per cent instead of current 10-15 per cent, meanwhile individuals in tax grades 4, 5, 6 and 7 also have benefits through higher payment threshold and dependent reduction levels.