Ministry proposes PIT reforms, expected to ease burden on low-and-medium income earners

Ministry proposes PIT reforms, expected to ease burden on low-and-medium income earners

In the draft amendments to the Law on Personal Income Tax, the number of tax brackets is proposed to be reduced from seven to five, with the top rate of 35 per cent applying to monthly taxable income above either VNĐ80 million (US$3,160) or VNĐ100 million.

Production at garment company Tân Đệ in  Hưng Yên Province. The PIT brackets are proposed to reduce from currently 7 to 5 . — VNA/VNS Photo Thế Duyệt

The Ministry of Finance is aiming to lighten the load on millions of salaried workers by proposing a simpler personal income tax (PIT) system with fewer brackets and higher family deductions in its latest draft amendment to the Law on PIT.

Currently under review by the Ministry of Justice, the draft suggests reducing tax brackets from seven to five, with the top rate of 35 per cent applying to monthly taxable income above either VNĐ80 million (US$3,160) or VNĐ100 million, depending on the chosen option.

At present, the progressive PIT system includes seven rates—5 per cent, 10 per cent, 15 per cent, 20 per cent, 25 per cent, 30 per cent and 35 per cent—which the ministry describes as complicated with narrow gaps between brackets.

Citing international trends, the ministry notes many countries have simplified their PIT systems in recent years. For example, Finland raised its top rate to 75.3 per cent in 2024, while Japan, South Korea and China have top rates of 45 per cent, and the Philippines and Indonesia apply 35 per cent. The number of brackets varies widely—Singapore has 13, the US seven and Albania two.

Based on global practice, the ministry considers a five-bracket system with a 35 per cent top rate and wider income bands appropriate for Việt Nam’s current conditions.

Both options in the draft start at a 5 per cent tax rate for monthly taxable income up to VNĐ10 million, progressing to the top 35 per cent rate.

In the first option, the tax rate of 35 per cent would apply to taxable income above VNĐ80 million per month. In the second option, taxable income above VNĐ100 million would bear the tax rate of 35 per cent.

Both options are simpler than the existing PIT system to facilitate compliance, the ministry said, adding that taxpayers in almost all income bands would see reductions in tax payable.

Regarding the proposal to reduce the top rate to 30 per cent or even 25 per cent, the ministry said that the proposed 35 per cent is reasonable.

The ministry has also proposed raising the monthly family deduction and allowing deductions for education and healthcare, which would exempt more low- and middle-income workers from PIT.

For example, a taxpayer with one dependent earning VNĐ20 million per month currently pays VNĐ125,000 in PIT but would pay nothing under option 2.

At a monthly income of VNĐ25 million, the tax payable would fall from VNĐ448,000 to VNĐ34,000, a reduction of 92 per cent. Taxpayers with incomes from VNĐ30 million would see their tax payable reduce from VNĐ968,000 to VNĐ258,000, down 73 per cent.

The ministry estimates the State budget will see a reduction of VNĐ7.1 trillion under option 1 and VNĐ8.74 trillion under option 2. The ministry opts for the second option.

Alongside the new tax brackets, the ministry has proposed raising the monthly family deduction from the current VNĐ11 million to VNĐ15.5 million, which is nearly three times higher than the national average income per capita and higher than the average income of the top 20 per cent of earners.

The ministry said the adjustment would reflect rising living costs and ensure the tax system does not become an unreasonable burden on salaried workers.

The change is estimated to reduce State budget revenue by an estimated VNĐ29.7 trillion a year but is expected to stimulate consumption and improve labour productivity.

According to tax expert Nguyễn Ngọc Tú, the PIT system needs a complete overhaul. The gap between brackets should be further widened to lift the highest taxable income threshold to above VNĐ200 million, rather than VNĐ80 million or VNĐ100 million.

The current VNĐ80 million threshold for the top rate of 35 per cent has been in place since the law was first introduced in 2007. Raising it to VNĐ100 million is not a meaningful update given that prices and incomes have risen seven times since then.

Without an appropriate mechanism, the new brackets will become outdated within just several years, especially as Việt Nam aims for two-digit growth in the next period.

Tú said the top rate of 35 per cent was still too high.

According to Nguyễn Hữu Huân from the University of Economics, HCM City, it is necessary to raise a system that automatically adjusts income thresholds in line with inflation.

The draft amendment is expected to be passed at the National Assembly’s meeting in October and would come into effect from the beginning of July 2026. 

Bizhub