Vietnam's Ministry of Finance is proposing a significant increase in the personal and dependent tax deduction thresholds for Personal Income Tax (PIT), aiming for a maximum of VND 15.5 million (approximately $600 USD) per month for individuals, with a proportional rise for dependents, starting from January 1, 2026. This long-awaited adjustment, part of a comprehensive revision to the PIT Law, seeks to alleviate financial pressure on Vietnamese households, particularly middle-income earners facing rising living costs. The move is expected to boost domestic consumption and foster greater fairness in the tax system, reflecting the government's commitment to improving taxpayer welfare.
A Welcome Tax Reform to Ease the Financial Strain
Vietnamese taxpayers, especially those with families, are set to receive a significant financial reprieve. The Ministry of Finance (MoF) is proposing a substantial increase in the personal and dependent tax deduction thresholds under the Personal Income Tax (PIT) Law, with the highest proposed personal allowance reaching VND 15.5 million (approximately $600 USD) per month, effective from January 1, 2026.
This proposed change is part of a broader, much-needed overhaul of the PIT Law, which has been deemed outdated by many experts and citizens alike, particularly given Vietnam's rapidly evolving socio-economic landscape and rising cost of living.
Details of the Proposed Adjustments
Currently, the personal deduction for taxpayers stands at VND 11 million per month, and the dependent deduction is VND 4.4 million per month per dependent. These levels have remained unchanged since July 2020, despite continuous inflation.
The MoF's new proposal offers two main options for the revised deductions:
Option 1 (Higher Deduction):
Personal Allowance: VND 15.5 million/month (an increase of VND 4.5 million, or 40.9%)
Dependent Allowance: VND 6.2 million/month (an increase of VND 1.8 million, or 40.9%)
Option 2 (Slightly Lower Deduction):
Personal Allowance: VND 13.6 million/month (an increase of VND 2.6 million, or 23.6%)
Dependent Allowance: VND 5.4 million/month (an increase of VND 1 million, or 22.7%)
While both options represent a significant increase, the higher figures in Option 1 are favored by many as they would provide more substantial relief. The MoF estimates that if approved, the changes could lead to a reduction in tax revenue of approximately VND 24.2 trillion per year under Option 1 and VND 12.8 trillion per year under Option 2.
Rationale and Expected Impact
The rationale behind these proposed adjustments is multi-faceted:
Addressing Rising Living Costs: The current deduction levels are widely seen as inadequate, especially for individuals residing in major cities like Hanoi and Ho Chi Minh City, where expenses for housing, education, healthcare, and daily necessities have significantly increased. The adjustment aims to ensure that taxpayers' disposable income is more reflective of their actual living costs.
Stimulating Domestic Consumption: By reducing the tax burden on a large segment of the population, particularly middle-income earners, the government hopes to free up more disposable income. This, in turn, is expected to boost household spending and stimulate overall domestic consumption, contributing to economic growth.
Enhancing Fairness and Equity: Many experts have argued that the current PIT system disproportionately burdens middle-income individuals, pushing them into higher tax brackets without adequately considering their financial responsibilities. Raising the deductions aims to create a more equitable tax system.
Simplifying Tax Administration: Beyond deductions, the MoF is also proposing to reduce the number of personal income tax brackets from seven to five and widen the income ranges for each bracket. This simplification would make tax calculations more manageable for taxpayers and improve efficiency for tax authorities.
Responsive Tax Policy: Experts are also advocating for a mechanism that allows the government to adjust deduction levels more dynamically (e.g., when the Consumer Price Index changes by 5-10%) without requiring full National Assembly approval each time. This would make tax policy more responsive to economic fluctuations.
The Road Ahead
The revised PIT Law is a key legislative priority. Deputy Prime Minister Ho Duc Phoc has confirmed that the revised law will be submitted for approval at the National Assembly's 10th session, slated for October 2025, using a fast-track legislative process. If approved, the new deduction levels and tax bracket structure would officially take effect from the 2026 tax period.
This proposed overhaul represents a crucial step by the Vietnamese government to adapt its tax policies to current economic realities, alleviate financial pressures on its citizens, and foster a more equitable and dynamic economy.