Simplifying Personal Income Tax to Foster Economic Growth
Experts in Hà Nội are strongly advocating for a significant reform to the nation’s personal income tax (PIT) system, specifically calling for the removal of the 35 percent top tax bracket. The primary motivation behind this proposal is to foster greater fairness, transparency, and overall economic productivity. While the Ministry of Finance’s latest draft amendment to the Law on PIT does propose a simplification of the current progressive tax system—reducing the number of brackets from seven to five—it controversially maintains the highest 35 percent rate. The current tiered system has rates ranging from a low of 5 percent up to the high of 35 percent. The Ministry’s draft provides two options for reform. Both options suggest that the lowest tax rate of 5 percent would be applied to taxable monthly income up to VNĐ10 million (approximately US$400) after all applicable deductions are made. This effort to simplify the system is a step toward making it more manageable for taxpayers and authorities alike.
Addressing Concerns Over High Tax Rates and Compliance
The Ministry’s two proposed options differ at the higher income tiers. Under the first option, the 35 percent top rate would be applied to income exceeding VNĐ80 million, while the second option sets a higher threshold at VNĐ100 million. Lê Thị Thuỷ, CEO of Bach Khoa Tax Consulting Service, supports the streamlining to five tiers and favors the second option for its more generous bracket spacing. However, Nguyễn Văn Được, head of the Policy Department under the HCM City Tax Agents and Advisory Association, argues that the 35 percent rate is still excessively high. He believes that such a high tax burden can actively discourage wealth creation and may encourage tax avoidance, leading to a loss of potential revenue for the state. Được proposes that the highest rate should be capped at 30 percent to better motivate economic activity and attract skilled professionals. He emphasizes that a reasonable and competitive tax structure is essential for attracting top talent and preventing income leakage, which in turn promotes a more competitive and dynamic labor market.
Proposing a More Progressive and Fairer Tax Structure
Nguyễn Văn Được has put forth a more radical and detailed proposal for tax reform, calling for a more significant restructuring of the lower tax brackets. He suggests that the lowest bracket should be expanded to cover a taxable monthly income of up to VNĐ20 million, a considerable increase from the Ministry’s proposed VNĐ10 million. Additionally, he advocates for setting the next tax tier at 15 percent for income in the VNĐ20-40 million range, which would bypass the 10 percent rate entirely. This restructuring of the lower tiers is designed to alleviate the tax burden on a significant portion of the workforce, particularly those in the middle-income bracket, while still promoting tax compliance and transparency among high-income earners. This approach would not only make the tax system fairer for the average earner but also help to build greater trust and legitimacy in the tax system as a whole. Such a reform would be a bold step toward creating a more equitable and efficient economic environment.
