MoF proposes two options on personal income tax calculation

By Trung Ngoc - Jan 05, 2018 | 06:20 AM GMT+7

TheLEADERThe Ministry of Finance (MoF) has transferred the draft law on amendment of tax laws, including personal income tax (PIT), to the Ministry of Justice for evaluation before reporting to the Prime Minister for consideration and submission to the National Assembly in 2018.

MoF proposes two options on personal income tax calculation
Two options are proposed to calculate PIT. Photo: Getty.

MoF has proposed two new options for calculating PIT. In Option 1, the number of tax grades subject to PIT will decrease from seven to five. Accordingly, individuals with taxed income at grade 1 (up to VND5 million or US$220) will not be affected. Individuals with taxed incomes at grade 2 or above (over VND5 million) will receive tax reduction.

For example, individuals with taxed income of VND10 million (US$441) per month will receive tax reduction of VND250,000 (roughly US$11) per month. Individuals with taxed income of VND30 million (US$1,323) per month will have a reduction of VND850,000 (US$33) per month, so on and so forth.

However, MoF found that although Option 1 meets the goals of reducing the tax grades and adjusting taxed incomes at each grade, the budget revenue will decline by about VND1.3 trillion (US$57.3 million). At the same time, it is argued that the amendment of PIT would benefit the rich other than the low-income individuals.

In Option 2, tax rate of 5 per cent will be applicable for grade 1 (up to VND5 million or US$220); 10 per cent for grade 2 (between over VND5million and VND10 million or US$440); 20 per cent for grade 3 (between over VND10 million and VND40 million or US$1,764); 30 per cent to grade 4 (between over VND40 million and VND80 million or US$3,528); 35 per cent for grade 5 and above (over VND80 million).

According to MoF, with this Option, the individuals with taxed incomes at grade 3 above will pay higher PIT than the current one, but the extra payment is still acceptable in comparison with their high-income level.

For example, if an individual with taxed income of VND15 million (US$661) a month will pay additional VND250,000 (roughly US$11) in PIT a month. An Individual with taxed income of VND30 million (US$1,323) per month will pay additional VND400,000 (US$17.6) per month, etc.

Thus, the total budget revenue is estimated to increase by about VND500 billion (US$22 million). Therefore, MoF is inclined to Option 2.

Commenting on the above options, the Government Inspectorate said that the decrease in the number of tax grades from seven to five will lead to big variance in the taxed incomes.

In addition, the reason for reducing the tax grades so as to simplify PIT declaration, checking and collection as proposed by MoF is not convincing, the Government Inspectorate added.

The Ministry of Planning and Investment is consent with the adjustment of the tax grades. The Ministry, however, proposed that MoF should study and assess the impact of the changes in PIT to ensure the competitiveness compared to neighboring countries.