It is necessary to switch to taxing net income, while taking into account family circumstance deductions to ensure fairness, some experts say.

Regarding the revenue threshold for exemption from Personal Income Tax (PIT) and Value Added Tax (VAT) for business households and individuals, the Ministry of Finance has proposed an increase from VND500 million to VND1 billion/year. 

Meanwhile, the National Assembly's reviewing body suggested a threshold of VND2 billion, and the Association of Small and Medium Enterprises proposed raising it to VND3 billion. 

So, what tax exemption level is appropriate for business households? Are business households "worse off" than employees?

H.T.T, a grocery store owner in Bach Mai ward (Hanoi), said that his store has revenue of about VND5-6 million/day, equivalent to about VND1.8-1.9 billion/year. However, the actual profit is less than 10 percent after deducting all types of expenses.

T. hopes the tax exemption threshold for business households would be raised to VND2 billion/year to be less disadvantaged compared to wage earners.

According to T., with a revenue of VND2 billion/year, the monthly income of a business household would reach about VND166 million. Assuming a profit margin of 10 percent, the actual profit would be around VND16.6 million/month.

This figure is equivalent to the threshold at which wage earners currently begin to pay PIT.

“As for revenue of VND1 billion/year, it is equivalent to about VND83 million/month. If an average profit margin of 10 percent is applied, the actual income this business household receives is only a mere VND8.3 million/month.

“Meanwhile, for an individual wage earner, the threshold to start paying tax (in cases with no dependents) is VND15.5 million/month (including VND11 million for family circumstance deduction and VND4.5 million for mandatory social insurance contributions). 

“For business households, even if their actual income reaches only VND8.3 million/month, much lower than the VND15.5 million threshold, they must already begin performing tax obligations to the State, which is an inadequacy regarding the tax threshold,” T. said.

Nguyen Quang Huy from Nguyen Trai University argued that determining a unified tax-free revenue threshold for all business households may not fully reflect the diversity of current business activities.

Reality shows that for the same revenue level, profit margins differ significantly across industries. A business household in the trade sector may achieve only a very low profit level, while some service sectors have much higher profitability rates.

Huy believes that the option of raising the tax-free revenue threshold to about VND2 billion/year could be a reasonable level in the short term, creating space to support small business households while limiting the risk of budget loss.

Additionally, if a business household is viewed as an individual business and a tax calculation similar to the Law on Personal Income Tax is applied, including deducting reasonable costs and family circumstance deductions before calculating tax, it is a well-founded approach.

“Applying the principle of taxing net income, with consideration for family circumstances, will contribute to improving the fairness of the tax system,” Huy said.

Taking another perspective, Nguyen Van Thuc, Chair of BCTC Tax Consulting Co., Ltd., commented that raising the tax-exempt revenue threshold to VND1 billion is a suitable step forward.

When business households perform first-quarter tax declarations, the Ministry of Finance and the Government will have more actual data on revenue, thereby updating it more closely compared to the previous presumptive tax context.

He said that the proposal to raise the exemption threshold to VND1-2 billion/year is a reasonable option in the context that the National Assembly and the Government have adjusted the family circumstance deduction to VND15.5 million/month for the taxpayer and VND6.2 million/month for each dependent.

“To ensure a minimum standard of living, a business household needs an income of about VND21.7 million/month. Assuming a profit margin of about 20 percent, this income level is equivalent to a revenue of over VND1.2 billion/year,” Thuc said.

Thus, applying a tax exemption threshold from VND1 billion or more will provide significant support, helping business households feel secure in focusing on their business and stabilizing their lives amid the current difficult economic context.

Huy suggested switching to a revenue tiering model instead of applying a rigid threshold.

Nguyen Le