In the context of significant socio-economic transformations, the amendment of the Law on Personal Income Tax (PIT) has become one of the key policy priorities receiving particular attention from both the Government and the National Assembly. Recently, the Ministry of Finance released the Draft Law on Personal Income Tax 2026, which proposes fundamental changes to the current tax regime — including the abolition of the presumptive tax (deemed-tax system), the reduction of the progressive tax brackets, and the increase of family-circumstance deductions.
A key question now arises: How will these changes actually benefit taxpayers? The Draft Law on Personal Income Tax 2026 proposes to eliminate the presumptive tax regime, reduce the number of progressive tax brackets from seven to five, and increase the level of family-circumstance deductions. Learn more with DNP Viet Nam Law Firm.
1. Current Legal Framework of Personal Income Tax (PIT)
The current personal income tax (PIT) system in Vietnam is established under the Law on Personal Income Tax 2007, together with its subsequent amendments and supplements enacted in later years. Detailed provisions on the scope of application, tax rates, and methods of calculation are specifically guided by Decree No. 65/2013/NĐ-CP issued by the Government.
- Pursuant to Clause 2, Article 14 of this Decree, the current progressive tax schedule consists of seven brackets, with the lowest rate at 5% and the highest at 35%.
- This progressive mechanism is applied to ensure the principle of equity among different income groups, while reflecting the actual contributory capacity of each individual taxpayer.
This tax schedule primarily applies to income from salaries and wages earned by resident individuals. Other sources of income — such as real estate transfers, capital investment, royalties, or winnings — are subject to separate tax rates, corresponding to the specific characteristics of each type of income.
2. Key Highlights of the Draft Law on Personal Income Tax 2026
- Elimination of the Presumptive Tax and Expansion of Taxable Entities: The draft law proposes to replace the existing presumptive tax regime with a tax system based on actual income applicable to individuals engaged in digital business activities and digital asset transactions.
- Reduction of Progressive Tax Brackets from Seven to Five: The Ministry of Finance introduces two proposed options to reduce the number of tax brackets while maintaining the top rate at 35%. The income ranges between brackets are proposed to be widened in order to mitigate the “bracket creep” effect, where taxpayers move into a higher tax bracket due to only a marginal increase in income.
- Increase in Family-Circumstance Deductions and Expansion of Deductible Expenses (Healthcare, Education, etc.): The draft law proposes to raise the personal deduction to approximately VND 15.5 million per month and the dependent deduction to around VND 6.2 million per month. It also contemplates allowing healthcare and education expenses to be deducted from taxable income, provided that the statutory eligibility requirements are satisfied.
3. Impacts on Employees and Taxpayers
Noticeable benefits for low- and middle-income groups: The reduction of progressive tax brackets from seven to five, together with higher family-circumstance deductions, enables many employees to retain a greater portion of their post-tax income.
Reduction of the “bracket creep” effect: By widening the income range between tax brackets, individuals experiencing minor income increases will not be immediately shifted into a higher tax rate — thereby ensuring greater income stability.
Note: Although many taxpayers will benefit, it remains essential to carefully review taxable income, exemptions and deductions, and mandatory insurance contributions to accurately determine the actual benefit. In addition, if the draft law expands the taxable scope or modifies the method of tax calculation, individuals with high incomes or non-salary income sources may experience different adjustments.
4. Elimination of Presumptive Tax and Revenue Threshold of VND 200 Million per Year
Under the revised Draft Law on Personal Income Tax, effective from 1 January 2026, resident individuals engaged in business activities with annual revenue of VND 200 million or less will not be subject to personal income tax (PIT). At the same time, the “presumptive tax” regime applicable to business households and individual traders will be abolished, replaced with a tax assessment based on actual income. For taxpayers whose annual revenue exceeds the prescribed threshold, the calculation will be:
- Taxable income = Revenue – Allowable expenses, multiplied by a tax rate of 17%.
- Household or individual businesses whose revenue does not exceed the threshold may continue to be taxed on a percentage-of-revenue basis during the transitional period.
5. Conclusion
The reduction of progressive tax brackets from seven to five, the widening of taxable income ranges, and the increase in family-circumstance deductions under the Draft Law on Personal Income Tax 2026 are expected to provide substantial benefits to low- and middle-income earners, allowing them to retain a greater portion of their income after tax. Furthermore, the abolition of the presumptive tax and the expansion of deductible expenses (such as healthcare and education) will enhance the equity and transparency of Vietnam’s tax system.
👉 Should you wish to estimate how the new tax schedule will affect your income or to develop a personalized tax planning strategy, please contact DNP Viet Nam Law Firm for professional and tailored legal consultation.
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