The Ministry of Finance is proposing to tax the profits of all household businesses exceeding the tax threshold, instead of taxing total revenue as currently. Specifically, household businesses that can determine input costs and have annual revenue under 3 billion VND would face a 15% tax rate on profit, while those with over 3 billion VND would pay 17%. If costs cannot be determined, they would pay a percentage of revenue, as currently, at rates of 0,5-2% depending on the industry.

Speaking to VnExpress, Doctor Nguyen Ngoc Tu, former director general of the General Department of Taxation and a lecturer at Hanoi University of Business and Technology, stated that this approach is inherently correct, as "income tax should be calculated on profit, not revenue."

Sharing this view, Nguyen Huynh Anh Tuan, director of GSC Tax Accounting Company Limited, believes the Ministry of Finance's proposal to offer multiple tax calculation options based on revenue scale and the ability to determine household business costs is reasonable. This ensures the principle of correct and full tax payment.

Compared to current regulations, Tuan stated that the new proposal helps household businesses significantly reduce tax costs. Particularly, businesses in sectors with high sales revenue and input costs (such as labor, raw materials, premises) would benefit.

At a tax policy seminar this week, Nguyen Thi Cuc, chairwoman of the Vietnam Tax Consultants' Association, praised the proposal to calculate income tax on profits. "Household businesses only have to pay tax if they make a profit and are exempt when incurring losses. This form ensures a more transparent and fair tax policy," she commented.

Traders selling goods at Ben Thanh Market (TP HCM). *Photo: Quynh Tran*

By the end of 2024, the country had approximately 3,6 million household and individual businesses. The number of stably operating households (lump-sum and declared) was 2,2 million. The number of households with revenue above the tax threshold (over 100 million VND annually) was 1,3 million, accounting for 59% of all household businesses.

From the perspective of household businesses, many support the proposal but harbor concerns. Nguyen Van Tam, a clothing stall owner at a market in Hanoi, stated that profit-based taxation "benefits industries with fluctuating profit margins." However, he primarily sources fashion items from wholesale markets, paying in cash, with almost no invoices.

"If proof of costs is required, I worry about not having enough documentation and being assessed a higher tax than reality," Tam said, proposing that management agencies research a simpler mechanism or apply an "industry-specific cost coefficient" to facilitate small household businesses.

Meanwhile, Tran My Duyen, a seafood trader in TP HCM, views profit-based taxation as "fairer" because input prices for items like shrimp and squid fluctuate daily. However, she worries about keeping track of invoices when her work starts at 3-4 AM. "If regulations are too strict, traditional market traders will find it difficult to keep up," she stated.

In reality, most household businesses currently pay a lump-sum tax and do not concern themselves with invoices. The majority of their inventory lacks documentation. Therefore, expert Nguyen Ngoc Tu believes that implementing the new calculation method at the beginning of next year would be "almost unfeasible."

"The lack of invoices and documentation will prevent household businesses from proving reasonable and valid costs. Consequently, they will struggle to determine cost of goods sold, profit, and loss for tax purposes," Tu said.

Experts suggest a roadmap is needed for households to restructure their procurement sources and gradually transition to documented transactions.

Nguyen Huynh Anh Tuan also pointed out barriers stemming from household business habits. Many households, especially older individuals operating in traditional markets, consider invoice management a cumbersome procedure. Therefore, they need time to adapt, adopt technology to comply with regulations, or incur additional costs for accounting services. From the tax authorities' perspective, Tuan noted that the workload would also increase significantly with the new proposal, as cross-referencing cost documents would be necessary to determine tax calculation methods.

In addition to the calculation method, the Ministry of Finance is also researching increasing the tax-exempt revenue threshold for household businesses to align with reality and ensure fairness for taxpayers. Currently, the tax threshold for household and individual businesses is 100 million VND annually, with a proposed increase to 200 million VND starting next year. This amount has been criticized as inadequate, leading experts and National Assembly delegates to suggest adjustments, proposing a minimum of 500 million VND, or even 1 billion VND.

According to Luu Duc Huy, deputy director of the Department of Tax, Fee, and Charge Policy Management (Ministry of Finance), if profit-based taxation is applied to household businesses, the tax-exempt revenue threshold would no longer have a significant impact. In that scenario, the threshold would primarily serve to identify small-scale households exempt from tax.

Huy affirmed that the adjustment level would be carefully considered by the agency to avoid inequality. "If the exemption level is too high, it could create unfairness between exempt households and those required to pay tax. Conversely, too many exemptions would reduce budget revenue, creating inequality," a Ministry of Finance representative stated.

In this regard, Doctor Nguyen Ngoc Tu also suggested that raising the tax exemption threshold too high could create "gray areas," encouraging tax evasion and diminishing the incentive for household businesses to convert into enterprises.

He hypothesized that with a 1 billion VND threshold, 99% of household businesses nationwide would be tax-exempt. This could lead large-scale households to split their revenue to evade taxes and reduce their motivation to transition into enterprises. Therefore, Tu recommended temporarily applying the 200 million VND level and considering adjustments after 2026, when the electronic invoice system achieves broader coverage.

"Policy should avoid sudden adjustments that disrupt the market. Furthermore, once the invoice system is fully implemented by 2026, real data will become available to assess whether the 200 million VND threshold should be maintained or adjusted," he added.

Phuong Dung - Phuong Dong