VINACHEM

The Ministry of Finance (MOF) has submitted a draft amendment to the PIT Law, proposing to reduce the number of tax brackets from seven to five. This approach reduces the tax burden for most taxpayers, especially those with middle and low incomes.

Under the current PIT Law, the progressive tax schedule for income from salaries and wages includes seven brackets: 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 30 percent, and 35 percent.

MOF states that, after reviewing the current tax structure, studying trends in improving living standards, and considering international practices, it would be feasible to reduce the number of tax brackets and widen the income ranges within each bracket. Simplifying and reducing the number of brackets aims to facilitate tax declaration and payment for taxpayers.

Option 1: 

Option 2: 

The ministry notes that under Option 1, individuals with taxable income in the first bracket will not be affected (however, with adjustments to family deductions, those in the first bracket will see tax reductions). Individuals in the second bracket and above will also benefit from tax reductions compared to the current system.

For example, a person with taxable income of VND10 million/month would see a reduction of VND250,000/month; a person with VND30 million/month would see a reduction of VND850,000/month; a person with VND40 million/month would save VND750,000/month; and a person with VND80 million/month would save VND650,000/month.

Under option 2, all individuals with taxable income of VND50 million/month or less would receive tax reductions similar to option 1. For individuals with taxable income of more than VND50 million/month, the reduction would be even greater than under option 1.

According to the drafting body, most feedback supports option 2. There are also suggestions to further widen the income ranges in each bracket, reduce the tax rate per bracket, or even lower the top rate from 35 percent to 30 percent or 25 percent.

Currently, in the region, the top tax rate is typically 35 percent, as in Thailand, Indonesia, and the Philippines, while China, South Korea, Japan and India have a top rate of 45 percent.

Adjustments under either of the two options, along with increasing family deductions and adding other deductible expenses like healthcare and education, would significantly reduce the tax burden.

Notably, for the middle- and low-income group, many would no longer be subject to PIT. For higher-income individuals, the tax burden would also be lower than under current rules.

For instance, a person with one dependent and a monthly income of VND20 million from wages or salaries currently pays VND125,000 in PIT a month. Under option 2, with the revised family deduction and new tax brackets, they would not have to pay any tax.

If their income is VND25 million/month, their tax payment would drop from VND448,000/month to VND34,000/month (a 92 percent reduction); if they earn VND30 million/month, their tax payment would fall from VND968,000 to VND258,000/month (a 73 percent reduction).

According to MOF’s calculations, adjusting the tax brackets under option 1 would reduce state revenue by VND7,120 billion, and by VND8,740 billion under option 2. Therefore, the Ministry has proposed that the government adopt option 2.

The government has confirmed that the tax amendment will be submitted to the National Assembly’s 10th session, slated for October.