DRAFT PERSONAL INCOME TAX LAW 2025: REFORMING VIETNAM’S TAX SYSTEM FOR A DIGITAL ECONOMY

The Draft Personal Income Tax (PIT) Law 2025 is designed to modernize Vietnam’s tax system, promote fairness and transparency, and build public consensus. This reform comes amid rapid digital economic growth, the emergence of new income sources, and shifts in labor market structures—requiring a flexible, sustainable, and internationally aligned tax framework.

🔍 Key Proposals in the Draft Law

The draft introduces several major changes:

• Simplified tax brackets: Reducing the progressive tax scale from 7 tiers to 5, while raising the threshold for the highest taxable income.
• Higher family deductions: Increasing personal and dependent deductions to ease the burden on middle- and low-income earners.
• Expanded tax base: Including new income types from the digital and green economy, such as income from digital asset transfers, carbon credits, and auctioned license plates.

⚖️ Public Debate and Concerns

The draft has sparked significant debate among experts, associations, and the public. One key concern is the retention of the maximum tax rate of 35%, which is seen as uncompetitive compared to regional peers like Singapore (24%), Malaysia, and Myanmar (30%). This could reduce Vietnam’s appeal to high-skilled professionals and foreign experts.

Another controversial proposal is the shift in tax calculation for household businesses—from revenue-based to profit-based. This change may increase compliance burdens and complicate administrative procedures for millions of individual business owners.

📊 Next Steps: Comprehensive Impact Assessment

The next section of the report will analyze the proposed changes in detail, assess their impact on different taxpayer groups and the broader economy, and compile recommendations to refine the draft law. The goal is to build a tax system that is effective, equitable, and practical.

I. Background and Rationale for Reform: Modernizing Tax in a New Economic Era

1. Limitations of the Current PIT Law

The 2007 PIT Law, after nearly two decades of implementation, shows signs of being outdated. The current family deduction—11 million VND/month for taxpayers and 4.4 million VND/month per dependent—no longer reflects basic living costs, especially in major cities.

Despite rising Consumer Price Index (CPI) levels, these deductions have not been adjusted, disadvantaging workers.

The 7-tier progressive tax scale is also considered overly complex and ineffective in regulating income. Meanwhile, new income types from the digital economy, sharing economy, and cross-border business activities remain largely unaddressed. This legal gap leads to tax management challenges, lack of transparency, and inequality in income regulation.

2. Government Objectives and Reform Roadmap

Reforming the PIT Law is an urgent task and part of Vietnam’s Tax System Reform Strategy to 2030. According to Mr. Trương Bá Tuấn, Deputy Director of the Tax Policy Supervision Department, the draft aims to ensure fairness across taxpayer groups and foster public consensus.

Key objectives include:

• Expanding the tax base: Updating taxable income categories and calculation methods to cover emerging income sources.
• Creating sustainable revenue: Mobilizing resources effectively for the national budget.
• Supporting macroeconomic goals: Encouraging workforce development, green transition, and sustainable growth.
• Improving fairness and transparency: Revising regulations to align tax obligations with income nature, simplify procedures, and enhance equity.

The draft has been published on the Government Portal for public consultation. It is expected to be submitted to the National Assembly in October.

II. Detailed Analysis of Key Changes in the Draft Personal Income Tax Law 2025

1. Adjustment of Progressive Tax Brackets and Tax Rates

One of the core changes in the draft law is the reduction of progressive tax brackets from 7 tiers to 5. According to the Ministry of Finance, the lowest rate remains 5%, while the highest rate stays at 35%. However, the threshold for the top bracket is raised from over 80 million VND/month to over 100 million VND/month.

Experts like Assoc. Prof. Dr. Pham Manh Hung view this simplification as a positive step, reducing complexity and narrowing the jumps between brackets. Still, retaining the 35% top rate remains controversial. Analysis from Deloitte Vietnam and KPMG shows that this places Vietnam among the highest PIT rates in the region—comparable to Thailand and Philippines, but significantly higher than Singapore (24%), Malaysia, and Myanmar (30%).

KPMG further highlights that the issue lies not only in the rate itself but also in the income threshold for applying it. Vietnam’s threshold (approx. 10x GDP per capita) is much lower than Thailand (20x) and Indonesia (62x), meaning the top rate affects not just the ultra-wealthy but also middle-income earners.

This could reduce work incentives, weaken labor market competitiveness, and drive high-skilled professionals toward countries with more favorable tax regimes—undermining Vietnam’s efforts to attract global talent.

2. Adjustment of Deductions and Expansion of Taxable Subjects

The draft proposes increasing family deductions to 15.5 million VND/month for taxpayers and 6.2 million VND/month per dependent. This aims to ease the tax burden, especially amid rising living costs. Many lawmakers and experts recommend applying this change starting in 2025, rather than delaying to 2026, as the current rates no longer reflect real-life expenses.

New deductions are also introduced, such as medical and education expenses, signaling a shift toward more citizen-friendly tax policies. For voluntary retirement insurance, experts suggest raising the current deduction of 1 million VND/month to match the dependent deduction level.

The current cap has remained unchanged since 2013, while base salaries have increased by 122%. Updating this would encourage financial independence and reduce pressure on the national social security system.

3. Expanding the Tax Base to Cover Emerging Income Sources

The draft significantly broadens the scope of taxable income, especially from the digital economy and green economy.

Income from Business Activities

A new method is proposed for individuals with revenue above a certain threshold: taxable income = revenue – expenses, taxed at 17%. This shift from fixed-rate taxation to profit-based calculation raises concerns about feasibility.

Experts warn of a conflict with VAT, which is still calculated on revenue, complicating tax filing. More importantly, this change could impose a heavy compliance burden on millions of small household businesses lacking the resources to manage complex accounting procedures.

Income from Digital and Green Sources

The draft explicitly includes new income types such as:

• Transfers of Vietnamese domain names
• Carbon credits and emission reduction certificates
• Green bonds
• Auctioned license plates
• Digital assets

This is a major step toward building a legal framework for emerging markets. However, some provisions lack clarity. For example, proposed tax rates for digital assets vary—5% on income over 10 million VND per transaction vs. 0.1% on transfer value for frequent trades—creating confusion and compliance challenges.

III. Comprehensive Impact Assessment of the Draft Law

1. Impact on Taxpayers

• Low and middle-income groups: The increased family deductions will significantly reduce tax obligations, boosting disposable income and improving living standards. For instance, a single taxpayer earning 16 million VND/month currently pays 250,000 VND in tax. Under the new deductions, they would owe zero.
• High-income earners and professionals: Retaining the 35% top rate may discourage work and investment, weakening Vietnam’s competitiveness in attracting talent.
• Household businesses: If profit-based taxation is adopted, this group faces higher compliance costs and administrative burdens, increasing risk of violations due to limited capacity.

2. Impact on Macroeconomy and International Competitiveness

Leading tax advisory firms warn that Vietnam’s PIT system lacks regional competitiveness. A high top rate and low threshold relative to GDP per capita create invisible barriers to attracting foreign experts and senior managers. This could affect high-quality FDI inflows, technology transfer, and knowledge exchange.

Regarding real estate, the Ministry of Finance withdrew its proposal to tax 20% on capital gains due to difficulties in determining cost basis. Experts suggest that anti-speculation measures should be addressed in other laws—such as the Non-Agricultural Land Use Tax Law—by taxing idle or unused properties more heavily.

3. Impact on State Budget and Tax Administration

According to the Ministry of Finance, adjusting the tax brackets may reduce state revenue by approximately 8,740 billion VND. However, this shortfall could be offset by expanding the tax base to include new income types like digital assets, carbon credits, and cross-border transactions.

This expansion presents major challenges for tax administration. Authorities will need to invest in technology, big data, and AI to monitor complex and digital transactions effectively.

VI. Conclusion & Policy Recommendations

The Draft Personal Income Tax Law 2025 marks a significant step forward in Vietnam’s efforts to modernize its tax system in response to the digital and green economy. However, to ensure fairness, feasibility, and long-term effectiveness, policymakers must carefully consider feedback from experts and the public.

Beyond technical revisions, the draft has sparked thoughtful proposals for personalized tax options. Experts suggest offering two deduction packages: a standard package and an expanded package. The expanded option would allow deductions for housing, transportation, healthcare, education, and other region-specific expenses—better reflecting cost-of-living differences between urban and rural areas.

Additional recommendations include targeted tax relief for specific groups, such as:

• Workers over 50 years old
• Professionals in high-tech, healthcare, and hazardous industries

These incentives would encourage continued contributions and long-term financial planning.

✅ Key Recommendations

1. Tax Brackets & Rates

• Lower the top tax rate to 25–30% to improve Vietnam’s regional competitiveness.
• Raise the threshold for the highest bracket to avoid taxing middle-income earners excessively and support economic contribution.

2. Family Deductions

• Apply the new deduction levels starting 2025, not 2026, to reflect current living costs.
• Increase the deduction for voluntary retirement insurance to match the dependent deduction, promoting financial independence and reducing pressure on public welfare systems.

3. Household Business Taxation

• Clarify the profit-based tax method for individual businesses.
• If adopted, provide a clear roadmap with strong support in technology, training, and administrative simplification to avoid compliance risks for millions of small business owners.

4. Tax Administration

• Issue detailed guidelines for new income types, especially digital assets and carbon credits.
• Resolve inconsistencies in tax rates for digital assets to ensure market stability and taxpayer confidence.

📊 Comparative Tables

A. Progressive Tax Brackets: Current vs. Proposed

B. Family Deduction Comparison

C. Top Tax Rate & Threshold Comparison (Regional)

These insights and recommendations from LawPlus aim to support the refinement of Vietnam’s Draft Personal Income Tax Law 2025. We hope the law will be enacted soon and effectively address current social realities—laying the groundwork for inclusive and sustainable national development.