Increasing the basic salary should be accompanied by increasing the family deduction level

From July 1, 2024, the basic salary applied to civil servants, public employees, and armed forces will increase to 2.34 million VND/month. Although the salary will increase, according to many opinions, the family deduction level in calculating personal income tax should also increase accordingly.

1. Worry about increasing salary subject to income tax

According to current regulations, the family deduction level for taxpayers is 11 million VND/month (132 million VND/year) and for each dependent is 4.4 million VND/month. Thus, for a civil servant without dependents, if the income is less than 11 million VND/month, he/she will not have to pay personal income tax.

The increase in the basic salary means that the total income of civil servants will increase. Suppose a civil servant before the basic salary increases to VND 2.34 million (from July 1, 2024) has a total income of VND 13 million/month, and has one dependent child. Thus, with the above income, this civil servant does not have to pay personal income tax.

After the basic salary increases by 30%, this civil servant's income will increase to about VND 17 million/month. This level is subject to personal income tax after deducting VND 11 million for his/her own family deduction and VND 4.4 million for the dependent's family deduction.

Thus, after the salary increase, the above civil servant's income increases, but is subject to personal income tax. Meanwhile, the actual cost of raising a child far exceeds VND 4.4 million. Therefore, many opinions say that if the basic salary increases, it must be accompanied by an increase in the family deduction to be meaningful. There is a proposal to increase the deduction level equivalent to the increase in the basic salary, which is at least 30% compared to the current level.
 

The basic salary applied to civil servants will increase to 2.34 million VND/month from July 1, 2024.

2. Why has the family deduction level not been adjusted?

Vice Chairman of the Committee on Culture and Education Ta Van Ha (National Assembly Delegation of Quang Nam Province) - said that when increasing the basic salary, it is necessary to study and adjust the family deduction level in the current personal income tax. According to the delegate, when the standard of living increases and expenses increase, the family deduction level must also increase. "If the basic salary is increased by 30%, then the family deduction must be increased by at least 30%, even 50% to be reasonable" - the delegate suggested.

Therefore, according to Ms. Nguyen Phuong Thuy, when the Ministry of Finance - the agency directly in charge of this field - prepares and advises the Government to complete the dossier to propose including this project in the law and ordinance program, the National Assembly Standing Committee will consider and report to the National Assembly on the addition of amendments to this law at the nearest possible session. Ms. Thuy said that although this is an urgent requirement, it must comply with the regulations on procedures.

The issue of increasing the basic salary and needing to increase the family deduction level was also raised by delegates at the 7th Session of the 15th National Assembly.

3. How to calculate family deductions when the basic salary increases

Currently, there are two subjects with income from salaries and wages who must pay personal income tax: resident individuals and non-resident individuals. Accordingly, for each subject, the personal income tax calculation is different.

3.1 Resident individuals:

This is the subject that is entitled to family deductions and has a permanent residence in Vietnam. The personal income tax calculation for this subject is as follows:

3.1.1 When signing a labor contract for 3 months or more:

Personal income tax payable = [(Total income - Exemptions) - Deductions] x Tax rate.

In which: Total income is all income of this person.
Tax-exempt income includes: Overtime wages at night are higher than those for daytime work, working during working hours... Deductions: Family deduction of 11 million VND/month/taxpayer, 4.4 million VND/month/dependent.

3.1.2 When signing a labor contract for less than 3 months:

For each income of 2 million VND/time or more, tax must be deducted at a rate of 10% on the income. Specifically, the calculation formula is as follows:

Personal income tax payable = 10% x Total income before payment.

3.2. Non-resident individuals:

For this subject, because family deductions are not allowed, when there is income minus charitable contributions, education encouragement, humanitarian contributions, insurance contributions, voluntary pension funds, non-resident individuals must pay personal income tax according to the formula:

Personal income tax payable = 20% x Taxable income (total salary, remuneration, wages, other income of the nature of wages, salaries).

Should you have any question further on this matter, please contact Faro Vietnam for salary consulting service for foreign employees and businesses.

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