HANOI, VIETNAM – A significant debate is unfolding in Vietnam over the adequacy of the current personal income tax (PIT) framework, with a growing chorus of lawmakers, experts, and citizens calling for a substantial increase in tax deductions to better reflect the nation's rising cost of living.
At the heart of the discussion is the "family circumstance deduction" (giảm trừ gia cảnh), a key element in calculating an individual's taxable income. Public opinion and various official bodies are advocating for a new deduction level of 16 million to 20 million Vietnamese Dong (VND) per month for the taxpayer. This proposed range is notably higher than the 15.5 million VND/month recently put forward by the Ministry of Finance.
The Core of the Debate: Matching Policy with Reality
The push for higher deductions is rooted in the economic reality faced by millions of salaried workers. The current personal deduction, which has been in place for several years, is increasingly seen as outdated and insufficient to cover the escalating costs of housing, food, transportation, education, and healthcare, particularly in major urban centers like Ho Chi Minh City and Hanoi.
Current Deduction Levels: At present, the monthly deduction for a taxpayer is 11 million VND, with an additional 4.4 million VND for each qualified dependent.
Ministry of Finance Proposal: The Ministry has formally proposed raising the personal deduction to 15.5 million VND/month (approx. $590 USD) and the dependent deduction to 6.2 million VND/month (approx. $235 USD).
Counter-Proposals: Many experts and provincial government bodies argue that the Ministry's proposal, while an improvement, still falls short. They are championing a higher threshold of 16 to 20 million VND to provide more meaningful financial relief and stimulate consumer spending. The Dien Bien provincial delegation, for example, has formally suggested a personal deduction of 20 million VND and 10 million VND for each dependent.
Economic Rationale and Potential Impact
Proponents of a more significant increase argue that it would provide a necessary buffer for low and middle-income families, who are disproportionately affected by inflation. A higher deduction means a lower taxable income, resulting in less tax paid and more disposable income for households.
According to the Ministry of Finance's own calculations, their proposed increase to 15.5 million VND would mean that an individual with a monthly salary of 15 million VND would effectively pay no personal income tax after mandatory social, health, and unemployment insurance contributions are made.
However, advocates for the higher 16-20 million VND range believe this would more accurately reflect the financial pressures on the "sandwich generation"—those caring for both children and aging parents. They contend that a more generous tax policy would not only ensure a better standard of living but also foster greater trust in the tax system and encourage voluntary tax compliance.
The proposed revisions are part of a broader overhaul of Vietnam's Personal Income Tax Law, which also includes simplifying the number of tax brackets from seven to five. The final decision on the new deduction levels will be made by the National Assembly's Standing Committee. If approved, the changes are expected to take effect for the 2026 tax year, though many are pushing for an earlier application to provide immediate relief.
