Family deduction according to regional minimum wage, what level is appropriate?

The family deduction cannot be a uniform number as it is now, but must be regional, depending on the economic conditions of the locality or region. But what is the basis for calculating the appropriate number?

The Ministry of Finance proposes to reduce tax rates to reduce the burden on personal income taxpayers - Photo: NGOC PHUONG

The comprehensive revision of the Personal Income Tax Law, which is being drafted by the Ministry of Finance, is very necessary, although this should have been done sooner.

In particular, the content that experts and public opinion are interested in is how much the family deduction is and how to calculate it appropriately, then the taxable income levels and personal income tax rates.

It is not possible to have a uniform family deduction level.

I completely agree that the Personal Income Tax Law must be drastically and comprehensively changed. In particular, the viewpoint of building this law must change to respond to flexible changes according to the actual situation, not to be too outdated compared to people's income and life, but also not have a timely adjustment mechanism.

Family deduction is the most concerned issue at present, many localities have made specific recommendations on this level. That can be a preliminary assessment of the living situation, income and economic conditions of the locality.

However, there are differences between the levels proposed by localities, which of course do not reflect the exact correlation between localities.

In the current conditions, the family deduction level cannot be a uniform number. It must be regional, depending on the economic conditions of the locality or region.

But the basis on which to calculate the appropriate number is not simple.

I agree with many proposals that it should be based on regional minimum wages or local GDP per capita.

Currently, localities have different socio-economic conditions, which are relatively reflected through the GDP per capita figure, reflecting the income and spending capacity of the people, but there are also quite large differences.

For example, there are differences even among high-income localities. In 2024, this figure in Ho Chi Minh City will be about 7,600 USD/person, Binh Duong will be about 7,250 USD/person. Meanwhile, Quang Ninh will be about 10,270 USD/person, Ba Ria - Vung Tau will be more than 18,200 USD/person.

As for the group of low-income provinces such as Bac Kan, it only reaches about 2,270 USD/person, a difference of 3-4 times. Therefore, if only basing on the average GDP per capita, it will not fully reflect the actual balance of income and actual spending of the people.

As for the regional minimum wage, we currently have four regions, the highest is region 1 with 4.96 million VND/month, the lowest is region 4 with 3.45 million VND/month, which means the difference is only about 1.5 times.

Looking at the relative level of current income and expenditure between regions, we can see quite similar differences according to regional minimum wages as mentioned.

Therefore, I think that the regional minimum wage is relatively appropriate to determine the family deduction level. In addition, the GDP per capita index can be used as a combined or reference criterion.

What level is appropriate?

Regarding family deductions, it is not easy to determine the exact spending needs of people. We can only calculate according to average spending needs, within the allowed conditions.

You can refer to the family deduction level in relation to the country's GDP growth rate (when the economic scale increases, people's income will inevitably increase, prices and spending will also increase, the rate of mobilization to the state budget will also increase...).

In 2007, when the Personal Income Tax Law was promulgated, the family deduction was 4 million VND/month for taxpayers and 1.6 million VND/month for dependents, while the average GDP per capita was 919 USD.

By 2024, average GDP will be about 4,700 USD, an increase of about 5.1 times compared to 2007.

Therefore, when amending the Personal Income Tax Law this time, it is appropriate to base on the average GDP per capita in 2024 to set a family deduction of about 20 million VND for taxpayers and 8-9 million VND for dependents, applicable to region 1 (large cities).

And it is also necessary to calculate and gradually narrow the gap between the spending needs of taxpayers and dependents to suit current reality.

Other regions adjust the family deduction level to decrease relatively according to the minimum wage of the remaining regions, the lowest is region 4 with about 15 million VND for taxpayers and 6-7 million VND for dependents.

In addition, it is necessary to reduce personal income tax rates, reduce tax rates for low levels and increase tax rates for high levels to increase income regulation, narrow the national rich-poor gap...

At the same time, it is necessary to prescribe a more flexible mechanism and authority to adjust family deduction levels, in the direction of leaving it to the Government for consideration and decision.

Source: https://tuoitre.vn/giam-tru-gia-canh-theo-luong-toi-thieu-vung-muc-nao-phu-hop-20250210082537228.htm