Vietnam raises personal income tax deductions by over 40%

The Standing Committee of Vietnam’s National Assembly, the country's legislature, on Friday approved a resolution on adjusting personal income tax (PIT) deductions, marking a significant increase of over 40% from current levels.

Under the new policy, effective from the 2026 tax period (tax declaration in March 2027), the monthly deduction for taxpayers will rise to VND15.5 million or $588 (VND186 million per year), while each dependent will be eligible for a deduction of VND6.2 million ($235) per month. Currently, those figures stand at VND11 million and VND4.4 million, respectively.

A dependent is defined as a person below the working age, or of the working age but with low or no income.

The adjustment is based on economic indicators showing that per capita income and GDP have risen by approximately 40-42% since 2020, said Deputy Minister of Finance Nguyen Duc Chi at the NA Standing Committee’s ongoing session.

“This adjustment reflects broader economic shifts, not just CPI changes. Factors such as average income, per capita GDP, and household expenditure trends were taken into account,” he explained.

The finance ministry estimates that the new policy will reduce annual state revenue by around VND21 trillion ($797.2 million), Chi said.

Delivering a verification report, Chairman of the NA Finance and Budget Committee Phan Van Mai stated that most committee members supported the adjustment. However, some lawmakers urged the government to adopt a more forward-looking approach.

“Basing the deduction solely on the increase between 2020 and 2025 may not fully reflect future income trends,” he noted, recommending the government consider GDP and income growth forecasts through 2026 and beyond when revising future thresholds.

The Law on Personal Income Tax was passed on November 20, 2007 and took effect from the beginning of 2009. The law was amended in 2012 and 2014.

Earlier, while drafting the revisions to the law, the finance ministry has proposed reducing the number of personal income tax brackets from seven to five, while widening the income ranges for each bracket.

Currently, the progressive tax schedule applied to salaried employees includes seven brackets with tax rates ranging from 5% to 35%. However, experts have long criticized the steep concentration of tax rates at lower income levels, urging authorities to revise the structure.

In the latest proposal, the ministry outlines two options for a revised tax bracket system, both aimed at simplifying the structure by reducing the number of brackets and increasing the income ranges per bracket.

Under both options, the minimum tax rate of 5% would apply to taxable monthly income of VND10 million, or $382 (after standard deductions and other allowable expenses).

The maximum tax rate of 35% would apply to taxable income above VND80 million ($3,058) in Option 1 and above VND100 million ($3,823) in Option 2.