Vietnam eyes targeted personal income tax breaks

Vietnam eyes targeted personal income tax breaks

The Ministry of Finance has proposed new personal income tax deductions for healthcare and education expenses, aiming to ease pressure on middle- and low-income households while encouraging long-term investment in human capital.

Accordingly, the ministry (MoF) has proposed cutting annual state revenue by approximately $307.9 million to support taxpayers through additional personal income tax (PIT) deductions for education and healthcare expenses.

The ministry has submitted to the government a draft decree detailing several provisions of the 2025 Law on Personal Income Tax, including a proposal to introduce deductions of up to $1,880 per year for medical and education-related expenses before personal income tax is calculated.

Under the draft, resident individuals earning income from salaries and wages would be eligible for deductions of up to $920 annually for domestic medical treatment expenses covered under the national health insurance scheme, and up to $960 annually for education and training expenses incurred for themselves and their dependents.

Resident individuals earning income from salaries and wages would be eligible for deductions of up to $960 annually for education and training expenses

According to the MoF, data from 2016-2024 shows that household spending on healthcare and education-training has risen sharply, reflecting improving living standards as well as a growing preference for long-term investment in human capital amid the development of the knowledge economy, sci-tech, innovation, and digital transformation.

Average healthcare spending reached roughly $140 per person per year, while average education and training expenditure stood at approximately $384 per person annually.

The MoF also noted that based on 2024 data, average annual healthcare spending by taxpayers and their dependents totalled approximately $816, while spending on education and training reached about $768.

According to the drafting agency, the introduction of these additional deductions would help ease tax obligations for citizens, particularly low- and middle-income earners, while also better reflecting the actual essential spending needs of households.

The MoF estimates that in cases where a taxpayer has one dependent and fully qualifies for all available deductions, the total deductible amount could approximate $12,295 per year, including family circumstance deductions as well as healthcare and education-training expenses.

Under the proposal, individuals earning around $1,120 per month would not yet be subject to personal income tax after insurance payments and applicable deductions are considered. Taxpayers with monthly income exceeding approximately $1,145 would begin paying tax at 5 per cent.

The ministry estimates that implementation of the new policy would reduce state budget revenue by around $307.9 million annually.

According to the MoF, international experience shows that many countries have adopted PIT deduction or exemption mechanisms for healthcare and education expenses to share the financial burden with households, encourage investment in human capital, and ensure social welfare.

However, deduction levels and implementation methods vary considerably among countries. Some nations do not provide a general deduction for dependents, instead integrating such support directly into healthcare and education deductions.

In Thailand, for instance, taxpayers are entitled to deductions of up to approximately $2,750 per year, while deductions for children under 25 years old are capped at roughly $1,380 annually for up to three children.

Thailand does not provide separate deductions for medical expenses but does allow deductions for health insurance and medical insurance premiums for parents.

Meanwhile, Malaysia applies a basic deduction of around $2,270 annually for taxpayers, while deductions for children range from approximately $505 to $2,015 per year depending on age and educational level.

In addition, taxpayers are eligible for deductions of up to roughly $2,520 annually for treatment of critical illnesses and around $1,765 for education and training expenses.

Le Xuan Truong, dean of Faculty of Taxation and Customs at the Academy of Finance, said that allowing additional deductions for healthcare and education-training expenses beyond the current family circumstance deduction demonstrates the state’s willingness to accompany and support taxpayers.

According to Truong, Clause 2, Article 11 of the 2025 Law on Personal Income Tax clearly stipulates that deductions are permitted for healthcare and education-training expenses incurred by taxpayers and their dependents, based on limits prescribed by the government.

“Looking at the overall picture, it is clear that the current tax policy system already contains multiple layers of support. Therefore, the additional deductions for healthcare and education proposed in this draft should be properly understood as supplementary support measures within the broader framework of existing taxpayer assistance and regulatory tools,” Truong said.

To avoid overlapping policies, the draft stipulates that deductible expenses must be supported by valid invoices and documentation. In particular, medical expenses must be accompanied by treatment records in accordance with regulations issued by the Ministry of Health.

The draft decree is expected to take effect from July 1, 2026, as per implementation of the 2025 Law on Personal Income Tax.

VIR