In the ever-evolving landscape of taxation, Vietnam’s Ministry of Finance has stirred the pot with a proposal to overhaul the Personal Income Tax Law, aiming to streamline tax brackets from seven down to five. While maintaining the maximum marginal rate at 35%, the ministry plans to raise the income threshold for this rate from VND80 million to VND100 million per month. But wait—this cap might feel like a heavy chain for those earning in the upper-middle class.
According to insights from a leading British audit and consulting firm, this proposal aligns Vietnam’s tax structure with similar economies. Thailand, Indonesia, and the Philippines all impose a 35% top rate, while neighbors like China, South Korea, and Japan push the boundary even further, reaching rates up to 45%. The Ministry argues that this alignment is necessary to ensure competitiveness on the global stage.
In addition to reconfiguring the brackets, the Ministry aims to increase deductions for health and education expenses, offering some relief to taxpayers. Yet many economists have voiced concerns about the hefty 35% rate itself. KPMG Vietnam’s personal tax advisory head, Nguyen Thuy Duong, points out that Vietnam’s threshold for this rate is significantly lower than its regional counterparts, leading the upper-middle class to shoulder a tax burden typically reserved for the wealthiest in other nations.
Some experts advocate for a reduced top rate, suggesting a drop from 35% to 30% to not only reflect more international norms but also to attract skilled professionals to Vietnam. This sentiment has been echoed by entities such as the Ho Chi Minh City Tax Advisors and Agents Association and the Vietnam Automobile Manufacturers Association. A lower tax rate is seen not merely as a burden alleviation strategy but as a catalyst for foreign investment and a tool to combat tax evasion.
Supporters of a more conservative tax strategy have proposed a cap of 25%. Phan Huu Nghi, deputy director of the Institute of Banking and Finance, argues this would resonate better with Vietnam’s economic landscape, where average incomes remain modest. “We can consider increasing the personal income tax rate once our average income reaches higher thresholds,” he notes.
As of last year, Vietnam’s per capita income climbed to $4,700, while the government has set impressive growth aspirations, targeting high-income status by 2045. With a robust annual GDP growth rate of 6.5%, experts like Vu Minh Khuong from the Lee Kuan Yew School of Public Policy predict that per capita income could soar to $15,000 by 2045 and even $20,000 by 2050. Personal income tax currently stands as the government’s third-largest revenue source, generating VND189 trillion last year—a 20% increase from the previous year.
A recent survey by VnExpress revealed that a significant majority—73%—favor a maximum personal tax rate ranging from 20% to 25%. Conversely, only 5% supported the 35% cap, highlighting a clear desire for reform. Many analysts urge that even if the 35% rate remains intact, the income thresholds must be adjusted upwards. Nguyen Van Duoc of Trong Tin Accounting and Tax Consulting advocates for raising the threshold to VND120–150 million instead of VND100 million, arguing that such a change is essential to align with economic realities.
As discussions continue, one thing is clear: Vietnam’s tax landscape is undergoing a significant review, and the stakes are high for both taxpayers and the economy. Will these proposed changes pave the path to a more balanced tax system, or will they perpetuate burdens that challenge economic growth? Time will tell!
What changes is the Vietnamese government proposing regarding personal income tax?
The government plans to reduce the tax brackets from seven to five while maintaining the maximum marginal rate at 35% but raising the income threshold for this rate to VND100 million per month.
Why do some analysts consider the 35% tax rate too high?
Many analysts argue that the current 35% rate disproportionately affects the upper-middle class in Vietnam, as it applies to incomes significantly lower than what other countries use as thresholds for their highest tax rates.
What are the public sentiments regarding personal income tax rates in Vietnam?
A survey indicated that 73% of respondents favored a maximum tax rate between 20% and 25%, with only a small fraction supporting the 35% cap, indicating a strong desire for reform in the tax structure.
