This proposal was included in the ministry’s recent report responding to assessments and feedback from National Assembly members on the draft revised Law on Personal Income Tax.

The ministry stated that the proposal reflects both the lawmakers’ concerns and the need for fairer treatment of household businesses compared to salaried workers and other income earners. The change also aims to better align the taxation of personal income and value-added tax for business individuals.

Specifically, the new threshold of USD 20,500 would serve as the baseline for tax exemption and as the deductible amount when calculating taxes based on revenue ratios.

According to data from October 2025, the new threshold would exempt around 2.3 million household businesses - roughly 90% of the nation’s 2.54 million such enterprises - from paying personal income tax.

For those with annual revenues between 500 million and 3 billion VND (USD 20,500–123,000), taxes would be calculated based on actual income (revenue minus expenses). A flat 15% income tax rate is proposed for this group, aligning with the corporate income tax rate outlined in Law No. 67/2025 for companies with revenues under 3 billion VND.

All household and individual businesses would pay tax based on actual earnings. If income is low or non-existent, tax liability would be minimal or zero. Only in cases where expenses cannot be determined would taxes be applied directly as a percentage of revenue.

To maintain consistency, the ministry has also proposed amendments to the 2024 Law on Value-Added Tax. Under this plan, household businesses earning less than 500 million VND annually would also be exempt from VAT.

For individuals renting out real estate - a non-regular business activity, excluding hospitality services - the draft law proposes a simpler tax method. If annual rental revenue exceeds 500 million VND, tax would be applied based on a fixed percentage of revenue. This would eliminate the need to calculate expenses, offset income from multiple properties, or conduct annual tax reconciliation.

Reducing tax rates for salaried income

The Finance Ministry has also proposed revisions to the progressive tax rate system for salaried individuals. The current seven tax brackets would be reduced to five, with wider gaps between levels and two rate adjustments.

The 15% tax rate (second bracket) would be cut to 10%, and the 25% rate (third bracket) reduced to 20%.

Additionally, to comply with the Constitution’s requirement that the National Assembly decides core tax policies, the Ministry proposes including the family deduction threshold in the law itself. Any future adjustments, based on inflation or income fluctuations, would be made by the Standing Committee of the National Assembly upon proposal by the government.

Nguyen Le