The Ministry of Finance recently drafted a resolution proposal for the National Assembly Standing Committee regarding adjustments to personal income tax deductions for the 2026 tax year. The proposed adjustments stem from a 21.24% increase in the consumer price index (CPI) between 2020 and 2025, exceeding the 20% threshold that triggers adjustments according to current regulations.
The Ministry of Finance has presented two adjustment options for consideration.
The first option adjusts deductions based on the CPI increase. This would raise the deduction for taxpayers from 11 million VND to approximately 13.3 million VND per month, while the dependent deduction would increase from 4.4 million VND to 5.3 million VND per month.
The Ministry of Finance believes this option aligns with the current Personal Income Tax Law, ensuring coverage of basic living expenses and inflation since the last adjustment.
The second option links adjustments to the growth of average per capita income and GDP. This would increase the taxpayer deduction to 15.5 million VND and the dependent deduction to 6.2 million VND monthly.
The ministry suggests this option would offer greater tax relief. While it might initially reduce state revenue, the increased disposable income could stimulate household spending and consumer demand, indirectly boosting other revenue streams in the medium to long term.
Both options represent an increase of 2.3-4.5 million VND for taxpayers and 0.9-1.8 million VND per dependent compared to current levels.
The new deductions are expected to take effect upon the resolution's implementation, starting in the 2026 tax year.
Personal income tax comprises taxes from salaried employees (the majority) and self-employed individuals. It is one of the three main pillars of the national budget, alongside corporate income tax and value-added tax (VAT).
The current personal deduction is 11 million VND, with an additional 4.4 million VND per dependent, unchanged since July 2020. Taxable income is calculated after deducting insurance, dependents, allowances, and subsidies. These deductions are reviewed for adjustment when the CPI increases by over 20%.
The current progressive tax system for salaried employees has seven brackets, with rates ranging from 5% to 35%. The current deductions and tax brackets are considered outdated given the rising cost of living. The government is expected to revise the progressive tax system in the upcoming Personal Income Tax Law amendment, potentially reducing the number of brackets and widening the income ranges.
Phuong Dung
