Individuals earning salaries and wages currently pay taxes according to a progressive tax scale, regardless of whether the payer is a state or non-state entity.

In its feedback on the draft amendments to the personal income tax law, the ministry of public security suggested that the ministry of finance consider exempting state-funded salaries, wages, and wage-like payments from income tax.

Citing the 2025 state budget law, the ministry pointed out that tax revenue, including personal income tax, constitutes state budget revenue. Therefore, the state paying salaries to employees and then taxing those same salaries to return to the state budget creates unnecessary procedures and staffing requirements.

In response, the ministry of finance stated that the personal income tax law applies uniformly to all individuals whose income reaches the taxable threshold. Therefore, exempting state-funded salaries and wages from income tax is inappropriate and could provoke public backlash.

"Individuals with the same taxable income should pay taxes equally, regardless of whether they work in the public or private sector," the ministry of finance stated. The same principle applies to personal deductions.

However, the ministry is considering exempting state-funded salaries and wages related to science, technology, and innovation.

In addition to salaries and wages, the ministry of public security also suggested considering tax exemptions for overtime pay, hardship allowances, and severance pay. They argued that these payments are meant to incentivize or compensate employees for risks.

"Taxing these payments reduces the incentive effect of reward policies and disadvantages employees, especially those working overtime or night shifts," the ministry of public security observed.

However, according to the ministry of finance, these provisions are already present in the current personal income tax law and will be retained in the amended law.

Meanwhile, the ministry of industry and trade proposed that allowances such as living expenses, war allowances, concurrent position allowances, and other benefits for Vietnamese officials working abroad should not be considered salary and should be tax-exempt. The ministry of finance acknowledged this suggestion and stated that it would consider adding it when drafting the guiding decree for the law.

Personal income tax is the third-largest source of tax revenue, after VAT and corporate income tax. Last year, total state budget revenue surpassed 2 quadrillion VND for the first time, with personal income tax estimated at 189 trillion VND, a 20% increase from the previous year. This tax type now accounts for over 9.3% of total budget revenue, up from 5.3% in 2011.

The draft amendments to the personal income tax law will be submitted to the national assembly for review and approval in the October session.

Phuong Dung