A recent proposal by the Ministry of Finance to raise taxable income threshold to VND5 million (US$238) from the current VND4 million ($190) will not help ease financial burdens in the context of rising consumer prices, according to experts.

Le Quoc Dung, vice chairman of the Economic Commission of the National Assembly, said the taxable income threshold needs to be updated urgently, since it was calculated years ago and has become quite outdated.

“Though the ministry has proposed to hike the tax threshold, it is not sufficient to ease the burden of taxpayers struggling with inflation,” he said.

The current tax law, approved in late 2007 and implemented in January 2009, established a taxable monthly income threshold of VND4 million. It also introduced deductions of VND1.6 million for dependants who earn less than VND500,000 a month.

The consumer price index increased by 12.63 percent in 2007 and 22.33 percent in 2008, before slowing down to 6.88 percent in 2009, and rising 11.75 percent in 2010. Since the end of 2010, the consumer price index is up 9.64, already having broken the official 2011 limit of 7 percent.

“In light of these figures, the new taxable income threshold is unrealistic,” Dung said.

Economist Le Dang Doanh said, “The proposed increase in tax threshold is insignificant, with no hikes in deductions for dependants. VND5 million is barely enough to cover life, let alone taxation.”

According to the Ministry of Finance, more than 200,000 people will benefit from the new regulations. The total tax revenues from this group is quite small since income tax payment for families does not exceed VND50,000 ($2.5) a month.

It is irrational to apply the same threshold throughout the country, said Doanh, since big cities like Hanoi and Ho Chi Minh City have much higher consumer indices compared to other provinces.

Cao Sy Kiem, member of the National Monetary and Financial Policy Advisory Council, said it is unfair for taxpayers if the deductions remain unchanged and inflation shoots up.

Le Thu Trang, a clerk at a Thai trade firm in Hanoi, said, “I do not understand why the government does not plan to increase deductions for dependants. VND1.6 million every month is far from enough to cover school fees and living costs for my 7-year-old although he studies at a state-owned school where fees are just a fourth of that in private schools.”

Economist Doanh said: “The taxable income threshold should be increased correlatively with the inflation hike since the personal income tax law was approved.”

Harsh polices will lead to tax evasion practices. Only reasonable tax rates encourage citizens to fulfill their tax duties, he said.

Nguyen Minh Phong of the Hanoi Socioeconomic Research Institute said income tax threshold should be increased every year, as inflation, minimum wage and living standards are in constant flux.

He proposed that taxable threshold be calculated at the rate of 7-10 times the minimum wage set by the government.

The government plans to increase monthly minimum wage to VND830,000 from VND730,000, effective May 1.