HANOI: Experts have supported Vietnam’s Finance Ministry’s proposal to apply a 17% personal income tax on profits of a number of business individuals and households as the policy change creates fairness while transforming companies into viable enterprises.
However, the experts also noted, there must be a detailed impact assessment of the change before any application to make the policy effective.
According to the latest draft amendment to the personal income tax law of the Finance Ministry that had recently been sent to the Justice Ministry for review, the Finance Ministry proposed to amend and complete regulations on tax calculation methods for business individuals and households from Jan 1, 2026.
Specifically, the tax on income of business individuals and households with annual revenue above the threshold prescribed by the government will be at 17%.
The taxable income is determined by the businesses’ revenue minus reasonable costs related to production and business activities during the tax period.
According to the Finance Ministry, the 17% tax is the same as the corporate income tax rate currently applying for small and medium enterprises with an annual revenue from three bilion dong to 50 billion dong.
For business individuals and households with revenue below the threshold prescribed by the government, they will continue to pay tax according to the lump-sum tax policy as currently.
The government will regulate and adjust the threshold of revenue to suit the socio-economic situation of each period. Currently, the threshold of annual revenue to be taxed is 200 million dong (nearly US$7,600).
According to Nguyen Ven Thuc, chairman of the board of members of BCTC Tax Agent Co Ltd, with the party, state and government encouraging the development of the private economy and promoting business individuals and households to transform into enterprises, the Finance Ministry’s proposal is well-founded and in the right direction.
“This policy creates fairness among large business individuals and small enterprises, while promoting transparency in business activities,” Thuc explained.
Sharing the same views, Vu Van Tinh from the academy of public administration and government’s law faculty said the mnistry’s prpposal is a reasonable step.
Instead of taxing on revenue under the current lump-sum tax policy, the new policy will tax on actual profit of business individuals.
“This creates equality among taxpayers, because the current lump-sum tax policy is often imposed on the entire revenue, not reflecting the actual capacity, which causes an inequality among business individuals and enterprises,” Tinh said.
According to Tinh, the new rate helps unify the government’s policies, while also encouraging business individuals to professionalise and transform into the enterprise model to enjoy incentives.
He added: “First of all, this tax rate will eliminate tax advantages. Currently, despite having very large revenues, many business individuals and households still enjoy a lump-sum tax rate that is much lower than the 20% rate for enterprises. When applying a 17% tax rate that is close to the 20% rate, this advantage disappears.”
In addition, when transforming from the business individual model to the enterprise model, business individuals will enjoy many incentives regarding legality, access to capital, brands and trade agreements that business individuals haven’t received yet, Tinh said.
“This tax rate also narrows the gap in tax obligations between business individuals and enterprises, making the transformation from a business individual to an enterprise a reasonable choice for long-term, transparent and more systematic development,” Tinh said.
Agreeing with this view, associate Prof Nguyen Thuong Lang, a lecturer at the National Economics University, said this is an important step in tax reform, because the shift from the current lump-sum tax policy to tax based on actual profits will accurately reflect the tax payment capacity of each group of taxpayers.
“This approach not only increases state budget revenue but also creates a healthy competitive environment, encouraging business households and individuals to operate more transparently and systematically,” Lang said.
Lang added that although the new policy might increase tax obligations for business households and individuals, it also comes with many benefits in terms of law, capital, brand and integration, thereby promoting business individuals and micro-enterprises to develop to a larger scale.
“This is the foundation for all businesses, from small to large, to improve productivity and quality, towards sustainable growth,” Lang said.
However, according to Lang, there needs to be a detailed impact assessment and specific quantification to make the policy to be effective when it is passed.
He suggests if all conditions are not met, a pilot programme can be conducted first to make appropriate adjustments.
To apply the tax changes, management authorities must deal with three main challenges.
First, the cost calculation, including the opportunity cost, must be transparent and complete according to accounting standards.
There needs to be a clear manual.
Second, the electronic invoice system and revenue calculation needs to be convenient, accurate and reflect honestly, so that the market operates transparently and sustainably.
Third, it is necessary to eliminate overlaps in policies, while at the same time harmonising the interests of all relevant parties to maintain fairness within an acceptable range.
Notably, Lang pointed out that Vietnam should refer to international experiences, where the tax systems are designed to be friendly and clear, ensuring both fairness and maintaining stable revenue sources. — Vietnam News/ANN
