The Vietnamese Ministry of Finance recently proposed amending the Personal Income Tax (PIT) Law, raising questions about whether Vietnam’s current tax threshold of 11 million VND/month ($4,675/year) is competitive compared to neighboring countries like China and Thailand.

Under the current PIT law, taxpayers in Vietnam are allowed a personal deduction of 11 million VND per month (132 million VND annually), with an additional dependent deduction of 4.4 million VND per month for each dependent.

Taxable income is calculated after subtracting mandatory deductions, such as social insurance, health insurance, unemployment insurance, and professional liability insurance (for certain professions). Only the remaining income is subject to PIT.

For example, individuals earning a salary of 16 million VND per month with one dependent or 20 million VND per month with two dependents, after all applicable deductions, are not required to pay PIT. Vietnam’s progressive tax rates for residents range across seven brackets, from 5% to 35%.

In other countries, PIT thresholds, deductions, and progressive tax rates vary significantly. So how does Vietnam's 11 million VND threshold compare regionally?

In Vietnam, the tax-free income threshold is equivalent to 132 million VND annually, or about $5,175 USD. This is roughly 1.2 times the country’s average per capita income in 2023 ($4,347 USD). When additional deductions are included, the exemption can amount to nearly double the per capita income.

In China, PIT-free income from wages is set at 60,000 yuan annually (approximately $8,288 USD or 210 million VND). This threshold is about 0.66 times the country’s per capita income of $12,614 USD in 2023.

China also offers specific deductions, such as child-rearing support (1,000 yuan/month) and elderly care (2,000 yuan/month). Tax rates for wages in China range from 3% to 45%, starting lower than Vietnam’s 5% but reaching a higher maximum of 45%.

In Malaysia, the first 5,000 ringgit of annual income (about $1,150 USD) is exempt from PIT. This is modest compared to the country’s 2023 per capita income of $11,649 USD.

Malaysia provides deductions of up to 9,000 ringgit annually for personal and dependent expenses, along with over 20 additional deductions for costs such as parental care, tuition fees, medical expenses, and assistive devices for disabled relatives. Tax rates range from 1% to 30%.

In Thailand, the PIT-free threshold is 150,000 baht annually (around $4,330 USD or 105 million VND). This represents about 0.6 times the country’s per capita income of $7,172 USD in 2023.

Thailand also offers various deductions, including for royalties, property rental income, home loan interest, life insurance premiums, tuition fees, and charitable donations. Its progressive tax rates range from 5% to 35%, with the highest rate applying to taxable income exceeding 4 million baht annually.

While Vietnam’s PIT-free threshold appears relatively high as a proportion of GDP per capita, many countries offer broader and more comprehensive deductions, such as for home loan interest, medical expenses, tuition fees, and charitable donations. Additionally, some nations set lower initial tax brackets, starting at just 1% or 3%.

In Vietnam, experts acknowledge that average incomes are low compared to the actual cost of living, with significant expenses in areas such as education and healthcare.

Many suggest increasing the personal deduction threshold to 16-18 million VND per month and raising dependent deductions to 5-7 million VND per month.

Manh Ha