Boost Family Deduction Threshold: Millions of Households Gain Extra Spending Power

Over 2 Million People Benefit from Personal Income Tax Reduction

After years of paying the lowest bracket of personal income tax (PIT), Ms. Thu Ngân from Hanoi is relieved to hear that the family deduction threshold will increase starting from the 2026 tax year. According to Ms. Ngân, living expenses have been rising steadily over the past two years. Prices of essentials like vegetables, meat, fish, eggs, milk, and cooking oil have all surged.

“A bundle of vegetables that used to cost 7,000 VND now ranges from 15,000 to 17,000 VND. Fresh and powdered milk prices have increased by 10%, with each box now costing between 50,000 and 70,000 VND. With living costs soaring and income declining, I’ve had to budget tightly to make ends meet,” Ms. Ngân shared.

Earning around 15 million VND per month, Ms. Ngân will no longer need to pay PIT starting in 2026. This change will save her a few million VND annually, allowing her to allocate more funds for family expenses.

Under the previous regulations, Mr. Lê Xuân from Hanoi still had to pay taxes after deducting allowances for his elderly parents and young child. With the new family deduction threshold, he will no longer be subject to PIT.

“Saving a few million VND in PIT will enable my family to spend more on our child’s needs and my parents’ medication. The government’s decision to raise the family deduction threshold demonstrates their responsiveness to the long-standing appeals of salaried workers like us,” Mr. Xuân said.

The new regulations increase the deduction for the taxpayer from 11 million VND/month to 15.5 million VND/month (a 40.9% increase) and the deduction for each dependent from 4.4 million VND/month to approximately 6.2 million VND/month.

These adjustments are based on the growth in average income and GDP per capita from 2020 to 2025, which has seen a 40-42% increase. The new deductions mean individuals earning over 17 million VND/month (taxpayer) and those with two dependents earning over 27.9 million VND/month will be subject to tax. This change fulfills a long-standing wish of the public and reflects feedback from National Assembly delegations in Ho Chi Minh City, Hanoi, Vinh Long, Ha Tinh, and Son La.

The Ministry of Finance estimates that the new deductions will exempt approximately 2.18 million people (nearly 50% of those in the lowest tax bracket) from PIT. The remaining 2.21 million taxpayers will continue to pay taxes. This change is expected to reduce the state budget by about 21 trillion VND annually compared to current regulations.

Tax expert Nguyễn Văn Được, CEO of Trong Tin Accounting and Tax Consulting Company, notes that income and living costs for workers are changing faster than tax policies. Without regular updates, deductions quickly become outdated, unfairly burdening taxpayers. Alongside increasing family deductions, the government should establish a more flexible adjustment mechanism for the future.

Mr. Được suggests that deductions should be adjusted periodically based on consumer price index changes or average income, rather than waiting years for revisions.

Boosting Domestic Consumption

Assoc. Prof. Dr. Phạm Thế Anh from the National Economics University believes that high PIT rates relative to average income, soaring housing prices, and high mortgage interest rates are stifling consumption. Adjusting PIT rates, increasing family deductions, and reducing taxes for low-to-middle-income earners will stimulate purchasing power and drive growth.

“PIT should be redesigned to prioritize workers, ease living expenses, and curb speculative asset behavior that causes price bubbles and financial risks. Achieving this will unlock domestic consumption and provide businesses with a larger market,” Mr. Thế Anh stated.

Deputy Minister of Finance Nguyễn Đức Chi emphasized that raising the family deduction threshold is essential given the significant increases in prices, living costs, and average income since 2020.

The new policy ensures fairness, reasonableness, and timely support for workers whose living standards have risen while deduction thresholds remained unchanged. This is not just a technical tax adjustment but also a social welfare message, demonstrating the government’s commitment to sharing challenges with the public.

Dr. Nguyễn Đức Kiên noted that from a macroeconomic perspective, this is a continued step in developing the domestic market. Higher incomes will boost domestic consumption, providing Vietnamese businesses with a large enough market to ensure profitability before expanding regionally and globally.

Mrs. Nguyễn Thị Cúc, Chairwoman of the Vietnam Tax Consultants Association, pointed out that while raising the family deduction threshold will reduce PIT revenue, it will enhance tax compliance. Fair taxation minimizes tax evasion, encourages voluntary compliance, and sustains long-term revenue through increased consumption.

In the short term, PIT revenue will decrease. However, over time, stimulated consumption will ensure overall revenue stability.