“The Pitfall of Inadequate Personal Allowances: A Drag on Productivity”

"Increasing salaries without adjusting personal income tax brackets can lead to a demotivating situation for employees. As their income rises, they may find themselves in a higher tax bracket, resulting in a decreased net pay increase. This can cause a sense of discouragement, as employees may feel that their hard work and efforts are not being justly rewarded. It is important to address this issue to ensure that employees feel valued and incentivized to perform to the best of their abilities."

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The decision to raise the base salary to 2.34 million VND is unprecedented and brings great expectations and joy to tens of millions of people who are subject to policies and regimes linked to the base salary. However, it is also necessary to control the market and adjust regulations on personal income tax to match the practical situation, ensuring that the salary increase is truly meaningful.

As a judicial officer for nearly three years, Ms. Le Quynh Trang, from Dong Anh district, Hanoi, receives a salary with a coefficient of 2.34, amounting to over 4 million VND per month. This salary is hardly sufficient to cover her family’s expenses. Thus, when the National Assembly approved a 30% increase in the base salary, officials and civil servants like her felt very excited.

“As a new civil servant, I am very happy because this means that my salary will increase, which also means that I will have a little more to spend on my daily life,” said Ms. Le Quynh Trang.

Similarly, for many teachers, a 30% increase in the base salary at this time is an important motivation for them to work with peace of mind. For those with decades of experience, such as Tran Thu Ha, deputy principal of a secondary school in Quoc Oai district, Hanoi, the new salary amounts to 16 million VND per month. However, for most young teachers working in the same industry, even though they are pleased that their salary has increased from 9 million VND to 12 million VND, they are also concerned about the personal income tax deductions and payments.

The unprecedented decision to raise the base salary to 2.34 million VND brings great expectations and joy to millions (Photo: KT)

“In reality, in our education sector, those of us who have been in the profession for a long time hope that the state will pay more attention to the issue of teacher salaries. I hope that the authorities will consider changing the personal income tax deductions for teachers who are raising young children and supporting elderly parents. With this salary increase, there will be many teachers earning 12 million VND or more, and with the current tax threshold, they will face difficulties,” said Tran Thu Ha.

Salary increases are something that all workers look forward to. However, if the increase is not accompanied by adjustments to the personal income tax threshold and family circumstance deductions, it will put pressure on salaried workers. The current family circumstance deduction does not reflect the reality of life.

Ms. Nguyen Thanh Van, a resident of Hanoi with a young child, shared that her monthly income is currently around 15 million VND. After the family circumstance deduction for raising a child, she still falls under the category of personal income tax payers. According to Ms. Thanh Van, while salaries have been increasing over the years, the family circumstance deduction has remained unchanged and is no longer suitable for workers living in large cities.

“The deduction amount allowed by the tax agency is currently low, and as the economy develops, my expenses also increase. For example, the cost of raising a child today is higher than the 4.4 million VND deduction. The amount I actually spend is not enough compared to the deduction,” said Ms. Nguyen Thanh Van.

According to many experts, this base salary increase is in line with the development of the economy and international standards. Mr. Bui Si Loi, former Vice Chairman of the National Assembly’s Committee for Social Affairs, stated: “If the family circumstance deduction is not adjusted in a timely manner, it will directly affect the meaning of the salary reform policy.”

There is a need to adjust the family circumstance deduction to match the practical situation (Photo: KT)

The family circumstance deduction is an amount deducted from the taxable income of an individual before calculating the personal income tax on their salary. Ms. Luong Thi Thu, General Director of Tam Viet Tax Agent Company, stated: “As personal income tax is mainly collected from salaried workers, the low family circumstance deduction does not attract foreign experts and highly skilled laborers to work in Vietnam.”

“Currently, many units are applying a lump-sum salary scheme. However, when employees strive to increase their income, they also think about the higher tax threshold, so they may not work to their full potential, and their enthusiasm for work may be affected,” said Ms. Luong Thi Thu.

According to the Law on Personal Income Tax, which has been in effect since 2020, the family circumstance deduction for taxpayers is 11 million VND per month, and for each dependent, it is 4.4 million VND per month. After more than four years, this deduction is considered outdated and no longer suitable for the actual situation. Many people believe that “the family circumstance deduction needs to be adjusted to match the practical situation.”

According to the Law on Personal Income Tax, when the CPI (Consumer Price Index) fluctuates by more than 20%, the Government will propose to the National Assembly’s Standing Committee to adjust the family circumstance deduction. Therefore, in addition to increasing salaries and curbing inflation, many people also propose that the Government soon amend the Personal Income Tax Law by the end of this year and submit it to the National Assembly for approval in May next year, ensuring a synchronous adjustment of the legal system and protecting the rights of workers.

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