Official: No Personal Income Tax for Earnings Below 17 Million

On October 17th, the National Assembly’s Standing Committee voted to pass a resolution adjusting the family deduction threshold for personal income tax. Starting from the 2026 tax year, the deduction for taxpayers will increase from VND 11 million/month to VND 15.5 million/month, while the deduction for each dependent will rise from VND 4.4 million/month to VND 6.2 million/month.

This marks the first adjustment since 2020, reflecting a significant shift in tax policy to align with changes in prices, income, and living standards over the past five years.

According to Deputy Minister of Finance Nguyễn Đức Chi, the revised family deduction threshold is based on two calculation methods:

Method 1, tied to the Consumer Price Index (CPI), reflects a 21.24% increase since 2020, resulting in deductions of VND 13.3 million for taxpayers and VND 5.3 million for each dependent. However, this method would reduce the budget by approximately VND 12 trillion annually.

Method 2, the chosen approach, is based on the growth rate of average per capita income and GDP, projected at a 40.9% increase since 2020. This raises the deductions to VND 15.5 million/month for taxpayers and VND 6.2 million/month for each dependent, reducing the budget by around VND 21 trillion annually.

Under the new policy, individuals earning up to VND 17 million/month will be exempt from personal income tax. With one dependent, the tax-exempt threshold rises to VND 24 million/month, and with two dependents, it increases to VND 31 million/month.

“This policy will alleviate financial burdens and support citizens amid rising living costs, ensuring a fair balance between tax obligations and actual income,” affirmed Mr. Nguyễn Đức Chi.

Long-term growth factors must be considered

Phan Văn Mãi, Chairman of the Finance and Budget Committee, stated that most committee members agreed with the government’s proposed adjustments. However, some argued that the new thresholds only account for changes up to 2025, lacking sufficient provisions for future fluctuations.

“The government should consider a more flexible margin, factoring in income or GDP growth rates through 2026 and beyond, to prevent the family deduction threshold from becoming outdated quickly,” Mr. Mãi noted.

Some delegates suggested applying the new deductions in the 2025 tax year to benefit workers sooner. However, the National Assembly’s Standing Committee decided to implement them from the 2026 tax year, ensuring alignment with the upcoming amendments to the Personal Income Tax Law.

According to the Ministry of Finance, increasing the family deduction threshold not only reduces tax burdens for citizens but also promotes more equitable income redistribution, boosts purchasing power, and indirectly supports economic growth. The ministry emphasized the need to monitor price and income changes for timely adjustments, avoiding policy lag as seen from 2020 to 2025.

Data from the Ministry of Finance shows that in 2023, nearly 2.6 million individuals were taxed at the 5% bracket (Tier 1). With the new deductions, approximately 95% of current Tier 1 taxpayers will be fully exempt from personal income tax.

This means about 2.47 million individuals (95% of 2.6 million) currently in Tier 1 will no longer pay personal income tax. Additionally, some Tier 2 taxpayers will be reclassified to Tier 1 or become tax-exempt.