There needs to be a detailed impact assessment of the tax changes before application to make the policy effective.

Tax authorities inspect the stall of a business individual. Photo tapchikinhtetaichinh.vn  

Compiled by Thu Hà

Many experts have supported the Ministry of Finance’s recent proposal to apply a 17 per cent personal income tax (PIT) on profits of a number of business individuals and households as the policy change creates fairness while promoting the companies transformations into an enterprise model.

However, the experts also note, there needs to 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 Ministry of Finance (MoF) that has recently been sent to the Ministry of Justice for review, the MoF proposes to amend and complete regulations on tax calculation methods for business individuals and households from January 1, 2026.

Specifically, PIT on income of business individuals and households with annual revenue above the threshold prescribed by the Government will be 17 per cent. In which, taxable income is determined by the businesses’ revenue minus reasonable costs related to production and business activities during the tax period.

According to the MoF, the 17 per cent PIT is the same as the corporate income tax (CIT) rate currently applying for small- and medium-sized enterprises (SMEs) with annual revenue from VNĐ3-50 billion.

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 VNĐ200 million (nearly US$7,600).

According to Nguyễn Văn Thức, Chairman of the Board of Members of BCTC Tax Agent Company Limited, with the Party, State and Government encouraging the development of the private economy and promoting business individuals and households to transform into enterprises, the MoF’s 17 per cent PIT proposal for business individuals that is similar to the CIT for SMEs is well-founded and in the right direction.

“This policy creates fairness between large business individuals and small enterprises, while promoting transparency in business activities", Thức explains.

Sharing the same views, Dr Vũ Văn Tính from the Academy of Public Administration and Government (APAG)’s Law Faculty said that the MoF's proposal to apply a 17 per cent PIT rate to business individuals with high revenue 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 between business individuals and enterprises,” Tính said.

According to Tính, the new 17 per cent PIT rate is the same as the CIT rate for SMEs with revenue from VNĐ3-50 billion so it helps unify the Government’s policies, while also encouraging business individuals to professionalise and transform into the enterprise model to enjoy incentives.

Tính 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 per cent CIT rate for enterprises. When applying a 17 per cent tax rate that is close to the 20 per cent CIT 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 got yet, Tính 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," Tính  said.

Agreeing with this view, Associate Professor Dr Nguyễn Thường Lạng, a lecturer at the National Economics University, said that 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,” Lạng said.

Lạng believes though the new policy may 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,” Lạng said.

Detailed impact assessment needed

However, according to Lạng, 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, Lạng pointed out that Việt Nam should refer to international experiences, where the tax systems are designed to be friendly and clear, ensuring both fairness and maintaining stable revenue sources.

Meanwhile, in order for the policy to truly come into effect and not create additional burdens, Dr Tính of APAG believes that it is necessary to set a high enough income threshold and only applicable to the group of high profitable business individuals. He believes that this approach will absolutely protect small business individuals and startups.

However, experts believe that the management authorities need to promote communication to help taxpayers understand the tax change to bring about effectiveness when the policy is passed.

In addition, the Government should extend the application period of the new tax policy until 2027 as it will help business individuals and households have time to prepare and gradually get used to the new policy.

For tax authorities, there needs to be preparation and support for business households and individuals on how to keep books, invoices and documents to follow the new tax policy. — BIZHUB/VNS

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