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| The Ministry of Finance has proposed to reduce the number of progressive tax brackets from seven to five__Photo: VNA |
The Ministry of Finance (MOF) has recently released a draft law on personal income tax (PIT), proposing to reduce the number of progressive tax brackets from seven to five. The move is aimed at simplifying the tax system, easing compliance for taxpayers, and fostering a more transparent and stable tax environment amid rising incomes.
The current partially progressive tariff includes seven brackets with tax rates ranging from 5 to 35 percent. However, according to the MOF, the narrow gaps between brackets have led to taxpayers quickly shifting into higher tiers with only modest increases in income. This not only raises their tax liabilities but also increases the number of individuals subject to year-end tax finalization, despite the minimal additional revenue gained.
It is worth mentioning that many countries in the region have streamlined their personal income tax structures in recent years. Indonesia currently applies a five-tier system with rates between 5 and 35 percent. The Philippines uses five brackets ranging from 15 to 35 percent. Malaysia, in a notable reform, reduced its number of brackets from 11 in 2021 to nine in 2024.
Two scenarios under consideration
Under the draft, the MOF proposes two scenarios—both reduce the number of tax brackets to five but differ in how they treat higher-income earners. Below are the details of each proposed structure:
Scenario 1
| Monthly Taxable Income (VND) | Tax Rate |
|---|---|
| Up to 10 million | 5% |
| Over 10 – 30 million | 15% |
| Over 30 – 50 million | 25% |
| Over 50 – 80 million | 30% |
| Over 80 million | 35% |
Scenario 2
| Monthly Taxable Income (VND) | Tax Rate |
|---|---|
| Up to 10 million | 5% |
| Over 10 – 30 million | 15% |
| Over 30 – 60 million | 25% |
| Over 60 – 100 million | 30% |
| Over 100 million | 35% |
The MOF believes that either option would simplify tax declaration and calculation, ease administration, and align with international norms. However, their impacts differ. Under the first scenario, low-income groups remain unaffected while middle- and high-income earners see moderate reductions. Meanwhile, the second scenario stretches the income thresholds for upper brackets, providing more relief to high-income earners. However, this approach is expected to lead to a greater reduction in state revenue.
Speaking to diendandoanhnghiep.vn, Vu Thu Ha, Deputy General Director of Tax Consulting Services at Deloitte Vietnam, emphasized the importance of tax reform in the context of economic growth and workforce competitiveness.
“Streamlining the tax brackets helps reduce the burden on low-income earners, especially those in the first three brackets,” Ha noted.
Sharing the same view, Associate Professor Dr. Phan Huu Nghi, Deputy Director of the Institute of Banking and Finance at the National Economics University, said the current tax schedule is overly layered, with narrow gaps between brackets, resulting in steep increases in both tax rates and tax liabilities even when income only rises slightly.
“The proposal to reduce the number of tax brackets to five is a reasonable move,” he said, adding that it would simplify the tax system, ensure budget revenue stability, promote fairness, and encourage productivity without overtaxing income gains.- (VLLF)
