The Ministry of Finance has submitted to the government a revised draft of the Law on Personal Income Tax, proposing a 5% minimum tax rate for monthly taxable income of 10 million VND (after deductions for dependents and other tax-deductible expenses). The progressive tax brackets are reduced to 5 levels, but the maximum tax rate remains at 35% for taxable income exceeding 100 million VND.

The Ministry of Finance's proposed tax bracket adjustments are as follows:

The Ministry of Finance justified the proposed rates by citing international experience, noting that some countries maintain a top tax rate of 35% (Thailand, Indonesia, Philippines) or even 45% (China, South Korea, Japan, India). The Ministry argues that adjusting the tax rates, along with increasing personal deductions and adding new deductions for healthcare and education, will reduce the effective tax rate – the ratio of tax paid to total income.

However, many argue that the 35% rate is no longer appropriate and should be lowered. A representative from Deloitte Vietnam stated that Vietnam's current progressive tax rates are among the highest in Southeast Asia. The 35% top rate is the same as Thailand and the Philippines, while Singapore's highest rate is 24%, and Malaysia and Myanmar are at 30%.

Deloitte suggests that the Ministry of Finance adjust the tax brackets and increase the income thresholds, especially for the highest bracket, to align with economic growth and attract highly skilled workers.

Nguyen Thuy Duong, Director and Head of Personal Income Tax Services at KPMG Vietnam, provided further analysis, noting that several countries in the region, including Thailand, Malaysia, Indonesia, and the Philippines, apply tax rates of 24-30% for incomes of 80 million VND and above.

KPMG's analysis of taxable income relative to GDP per capita shows that for the 5-25% brackets, Vietnam's income ranges are similar to Indonesia and Thailand, ensuring progressivity and affordability.

However, for the 35% bracket, Vietnam proposes to apply it from 10 times the average GDP per capita, significantly lower than Thailand (20 times) and especially Indonesia (62 times). According to Duong, this means middle- and high-income earners in Vietnam reach the top tax rate sooner, while in other countries, it only applies to the highest earners.

Doctors and medical staff at the Pasteur Institute in Ho Chi Minh City conduct research and testing, August 2025. Photo: Quynh Tran

Doctors and medical staff at the Pasteur Institute in Ho Chi Minh City conduct research and testing, August 2025. Photo: Quynh Tran

In a VnExpress survey conducted since August, approximately 73% of nearly 12,700 participants preferred a top personal income tax rate of 20-25%. Only 5% agreed with a 35% top rate, while 7% chose a 30% maximum.

KPMG experts believe that reducing the top tax rate from 35% to 30% would be more economically sound, closer to international norms, and create a competitive advantage in attracting skilled professionals. This view is shared by the Ho Chi Minh City Tax Consulting and Tax Agent Association. The Vietnam Automobile Manufacturers' Association (VAMA) proposes only 4 tax brackets (5%, 10%, 20%, and 30%), instead of maintaining the 35% rate as in the draft.

In addition to attracting and retaining talent, tax experts argue that an attractive tax policy is crucial for foreign investment decisions, encourages legitimate wealth creation, and reduces tax evasion and transfer pricing.

A 25% top rate also has considerable support. The National Assembly delegation from Nghe An province believes this rate would better encourage and motivate taxpayers. Associate Professor Phan Huu Nghi, Deputy Director of the Banking and Finance Institute (National Economics University), believes this rate would be more appropriate for actual incomes and ensure fairness and efficiency in tax regulation.

Nghi reiterated his view that the highest tax rate should be 25% because Vietnam's average income is not high, and the economy needs to accumulate and invest. He argues that policy should also motivate workers, while the corporate income tax rate is currently at 20%.

"Vietnam can increase the personal income tax rate later when the average income per capita reaches a higher level," he said.

Vietnam's GDP per capita has been steadily increasing in recent years, reaching 4,700 USD last year. Vietnam is targeting high growth of 8% or more this year and double digits in the coming period to join the high-income group by 2045.

Professor Vu Minh Khuong from the Lee Kuan Yew School of Public Policy, National University of Singapore, estimates that if Vietnam's GDP per capita grows by 6.5% annually for 20 years, it will reach 15,000 USD by 2045, the lowest threshold for the high-income group. If this rate is maintained, Vietnam could reach approximately 20,000 USD per capita by 2050.

Personal income tax is the third-largest source of revenue in the tax system, after value-added tax (VAT) and corporate income tax. Last year, total state budget revenue exceeded 2 quadrillion VND for the first time. Personal income tax revenue was estimated at 189 trillion VND, a 20% increase from the previous year. This tax type accounted for over 9.3% of total state budget revenue, up from 5.3% in 2011.

Associate Professor Phan Huu Nghi acknowledges that the progressive tax system ensures vertical equity, but if not designed properly, it can discourage work, especially as average incomes are rising rapidly.

"If income increases by 30% but the brackets and tax rates are not adjusted accordingly, workers will suffer," he said. According to the expert, this affects dedication and tax transparency in the long run.

If the government maintains the 35% top tax rate, experts suggest raising the income threshold. Nguyen Van Duoc, Director of Trong Tin Accounting and Tax Consulting Company, said this could offset the revenue shortfall from lower-bracket taxpayers, but the threshold should be raised to 120-150 million VND and increased gradually, compared to the proposed 100 million VND.

Agreeing with this view, Duong suggests that if the 35% top rate is maintained, Vietnam should consider setting the threshold at a minimum of 20 times GDP per capita (equivalent to 2.4 billion VND per year, based on 2024 GDP per capita), instead of the current 10 times. This would be equivalent to a monthly income threshold of 120 million VND for the highest bracket.

Phuong Dung - Quynh Trang