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| A customer browses items on display at a WinMart supermarket in Hanoi__Photo: VNA |
Amid widening gaps in living expenses among localities, the Government has reached a consensus on revising the family circumstance-based deduction policy under the Personal Income Tax Law to take regional differences into account. This is regarded as an important step toward upholding the principle of equity in tax obligations, while more accurately reflecting the actual living standards of taxpayers in different parts of the country.
Incorporating regional characteristics into tax policy
On June 26, the Government issued Resolution 191/NQ-CP on the formulation of a new Personal Income Tax Law to replace the current one, assigning the Ministry of Finance to study and propose a revised family circumstance deduction scheme. Notably, for the first time, the Government has directed that regional disparities be considered in determining deduction levels, instead of applying a uniform amount nationwide as currently practiced.
Under existing regulations, taxpayers are entitled to a deduction of VND 11 million per month for themselves and VND 4.4 million per month for each dependent, regardless of their place of residence. However, living costs—particularly in major cities like Hanoi and Ho Chi Minh City—are significantly higher than in other regions. Adjusting family circumstance-based deductions by region is therefore expected to more accurately reflect actual expenses and help safeguard middle- and low-income earners in high-cost areas.
Proposal to link deductions to region-based minimum wages
Experts and business representatives have welcomed the proposed shift. Dr. Nguyen Ngoc Tu of the Hanoi University of Business and Technology proposed using the region-based minimum wage, set annually by the Government, as a benchmark for calculating deductions. “Each year, the Government sets region-based minimum wages. The deduction for taxpayers could be pegged at four or five times the applicable minimum wage, so that whenever the wage is adjusted, the deduction level increases accordingly,” Dr. Tu suggested.
Lawyer Nguyen Duc Nghia, Deputy Director of the Small and Medium Enterprise Support Center under the Ho Chi Minh City Union of Business Associations, also endorsed this proposal. He explained: “If the Ministry of Finance continues to set a fixed deduction amount, it will require frequent review and adjustment. Linking the deduction to region-based minimum wages—which are updated annually—would create a more streamlined, rational, and equitable policy.”
Currently, the regional minimum wage ranges from VND 3.45 million/month (Region IV) to VND 4.96 million/month (Region I). If a multiplier of 4 is applied, the family circumstance-based deduction for taxpayers in Region I, such as those in Hanoi and Ho Chi Minh City, would reach nearly VND 20 million/month. This would significantly raise the taxable income threshold and help ensure fairness for workers in high-cost areas.
Reforming the Partially Progressive Tax Schedule
In addition to adjusting family circumstance-based deductions, experts have also called for a comprehensive reform of the Partially Progressive Tax Schedule. Specifically, they recommend reducing the number of tax brackets from seven to five and lowering the top marginal rate from 35 percent to 25 percent, to better align with the standard corporate income tax rate of 20 percent. They also propose increasing the highest taxable income threshold from VND 80 million/month to VND 160 million/month, in order to more accurately reflect rising income levels and living costs.
Roadmap for formulating and promulgating the new law
Resolution 191/NQ-CP also instructs the Ministry of Finance to promptly finalize the policy framework, organize the drafting of the law, and submit it to the Government for review at the July 2025 thematic session on lawmaking. The Prime Minister has authorized the Minister of Finance to sign a proposal requesting the National Assembly Standing Committee to include the draft law in the 2025 legislative program and present it for consideration and passage at the 10th session of the 15th National Assembly (scheduled for September–October this year).
Experts note that since the last adjustment to the family circumstance-based deduction in 2020, the consumer price index (CPI) has risen by over 16 percent, underscoring the need for an update. If the National Assembly adopts the law by the end of 2025, the new deduction levels could apply for the 2025 tax finalization (in the first quarter of 2026). More complex revisions—such as adjustments to the progressive tax brackets or the taxation of income from real estate transfers—could be implemented from 2026.- (VLLF)
