Why is a Major Reform Necessary?

Vietnam is entering a phase of economic and social development filled with both challenges and opportunities. In this context, the tax system plays a crucial role in income redistribution, fostering economic growth, and ensuring government revenue. The Personal Income Tax Law 2025 represents a significant step in tax system reform, aiming to enhance fairness, transparency, and alignment with real-world economic conditions.

Let’s examine the groundbreaking aspects of the Personal Income Tax Law 2025 proposal and its substantial impacts on individuals, businesses, and the economy as a whole.

Why Is It Necessary to Change the Personal Income Tax Law 2025?

Vietnam’s personal income tax (PIT) system has undergone multiple revisions, yet it still has many limitations. Several key factors necessitate the establishment of a new tax law to replace outdated provisions:

• Economic shifts and income growth: Over the past decade, the cost of living has significantly increased, requiring adjustments to taxable income thresholds and family deduction levels to remain relevant.
• Digital transformation and the digital economy: The rise of online business models, e-commerce, cryptocurrency, and income from the gig economy creates new challenges for tax administration, requiring updated taxation methods.
• International economic integration: Tax policies must be adjusted to align with international trade commitments, prevent tax evasion, and ensure fair competition with other countries.
• Fairness and transparency: The tax system must ensure that high-income earners contribute more while reducing the tax burden on middle- and low-income individuals.

For these reasons, the Personal Income Tax Law 2025 has been proposed by the Vietnam Ministry of Finance as a transformative measure.

Key Changes in the Personal Income Tax Law 2025

1. Adjusting Taxable Income Thresholds and Family Deductions

One of the most anticipated changes in the Personal Income Tax Law 2025 is the adjustment of family deductions. Under the new proposal:

• The basic deduction for taxpayers is expected to increase from VND 11 million/month to VND 15 million/month.
• The deduction for dependents is set to increase to VND 5 million/month per dependent.

Additionally, the progressive tax bracket system will be simplified, reducing the number of tax brackets from seven to five, making tax filing easier.

These adjustments will ease the tax burden on middle-income earners, increase disposable income, and stimulate economic growth.

2. Expanding the Scope of Taxable Income

The Personal Income Tax Law 2025 will expand the taxable income categories to better reflect the evolving economic landscape. Key updates include:

• Taxation on cryptocurrency transactions and digital assets: Given the rapid growth of the crypto market, taxing capital gains from crypto investments will help regulate financial flows and ensure transparency.
• Taxation on e-commerce and digital platform earnings: Income from online sales will now be subject to taxation based on actual revenue.
• Taxation on intellectual property transfers: Earnings from software copyrights, digital content, and intellectual property will be classified as taxable income to reflect their real market value.

3. Tax Exemptions and Reductions for Key Industries and Regions

A groundbreaking feature of the Personal Income Tax Law 2025 is the introduction of special tax incentives for specific labor groups:

• High-tech workers (CNC – Cutting-edge technology professionals): Individuals in AI, blockchain, and data science will benefit from lower tax rates to attract and retain skilled talent.
• Startup entrepreneurs: Founders of tech startups and innovation-driven businesses may qualify for a 2-3 year tax exemption to foster entrepreneurship.
• Workers in underdeveloped regions: Tax reductions will be provided to individuals working in remote and economically challenged areas to encourage regional development.

Digitizing Tax Filing and Payment Processes

One of the major improvements in the Personal Income Tax Law 2025 is the adoption of digital tax management solutions. The proposed changes include:

• Mandatory e-tax filing for individuals with multiple income sources.
• Integration of tax systems with banks and digital platforms for automated tax calculations.
• Streamlined tax refund processes, ensuring overpaid taxes are reimbursed promptly through electronic systems.

These advancements will significantly reduce administrative burdens and improve tax compliance.

Impacts of the Personal Income Tax Law 2025

1. Impact on Individuals

• Low-income earners will benefit the most from higher family deductions.
• High-income earners will face fairer tax obligations, contributing more to national revenue.
• Tech workers and startups will have greater incentives to innovate due to tax breaks.

2. Impact on Businesses

• Enhanced business environment as small-scale entrepreneurs face lower tax burdens.
• Encouragement for investment in technology and innovation through tax incentives.

3. Impact on the Economy

• Increased government revenue from previously untaxed income sources.
• Greater tax fairness, ensuring all individuals contribute proportionally to their income.
• Improved transparency in financial transactions, particularly within the digital economy.

The Personal Income Tax Law 2025 is not just a legal update, it represents a fundamental transformation in Vietnam’s tax administration. With its bold and well-reasoned changes, this law is expected to make the tax system fairer, more transparent, and more efficient for both individuals and businesses.

The implementation of the Personal Income Tax Law 2025 will mark a crucial milestone, helping Vietnam adapt to the global economy, attract investment, and ensure equitable taxation across different income groups.

About ANT Lawyers, a Law Firm in Vietnam

We help clients overcome cultural barriers and achieve their strategic and financial outcomes, while ensuring the best interest rate protection, risk mitigation and regulatory compliance. ANT lawyers has lawyers in Ho Chi Minh city, Hanoi,  and Danang, and will help customers in doing business in Vietnam.

Source: https://antlawyers.vn/update/personal-income-tax-law-2025.html

  On February 18, 2025, Vietnam will implement a significant change in its tax policy by abolishing import tax and VAT exemptions for goods valued under 1 million VND. This decision marked a turning point for Vietnam’s economy, particularly impacting the cross-border trade and e-commerce industries.  

The move aims to boost domestic production and create a more equitable tax environment, but it has also introduced several challenges. In here, we will explore the 7 powerful impacts of abolishing tax exemptions in Vietnam, its effect on businesses and consumers, and strategies for adapting to this new reality.

Policy Shifts: Understanding the Abolishing Tax Exemptions in Vietnam  

Previously, under Decision 78/2010/QĐ-TTg, goods imported via express delivery services valued under 1 million VND were exempt from import tax and VAT. This exemption helped reduce the costs of imported goods, fostering growth in cross-border e-commerce and retail.  

However, under Decision 01/2025/QĐ-TTg, these tax exemptions were completely abolished. From February 18, 2025, all imported goods, regardless of value, are now subject to:  

– Import tax based on the product category, and  

– VAT will be applied.  

This shift has effectively eliminated a cost advantage that was widely utilized by small businesses and online retailers. The implications of abolishing tax exemptions in Vietnam are far-reaching and multifaceted.

Increased Costs for Importers  

Abolishing tax exemptions in Vietnam has caused a significant rise in the cost of importing goods, particularly low-value items.  

– Higher Costs for Businesses: A product previously priced at 800,000 VND is now subject to taxes that can raise its price to over 1 million VND. Businesses that relied on low-cost imports to maintain competitive pricing are struggling to absorb these additional costs.  

– Pressure on Profit Margins: Small and medium-sized enterprises (SMEs) have been hit hardest, as they often lack the resources to offset these additional expenses.  

For companies heavily involved in importing consumer goods, re-evaluating pricing strategies has become essential to maintain market viability.  

Impact on Vietnam’s E-commerce Landscape  

The e-commerce sector is one of the most affected by abolishing tax exemptions in Vietnam, particularly cross-border e-commerce platforms like Shopee, Lazada, and Alibaba.  

Challenges for Sellers  

– Increased Prices: Sellers relying on imported goods must increase their prices to cover the newly imposed taxes, potentially driving customers to seek alternatives.  

– Decline in Dropshipping Models: Dropshipping businesses, which depend heavily on cross-border shipments of low-cost goods, are facing shrinking profit margins due to higher import costs.  

Challenges for Consumers  

– Higher Prices: Consumers now bear the burden of these taxes through higher retail prices.  

– Reduced Availability: Many low-value items, previously affordable and readily available, are being removed from online catalogs due to their decreased profitability.  

This policy shift may also incentivize e-commerce players to promote domestic products more aggressively, leading to changes in product offerings and market dynamics.

Consumer Behavior: Adapting to Higher Costs  

With the abolishing tax exemptions in Vietnam, consumers are also being forced to adapt.  

– Shift to Domestic Products: As imported goods become more expensive, consumers are increasingly turning to locally produced alternatives.  

– Focus on Essential Goods: Non-essential low-value items such as accessories, toys, and small gadgets are seeing reduced demand, as consumers prioritize necessities over discretionary purchases.  

This change in behavior creates opportunities for domestic producers but poses significant challenges for import-dependent retailers.  

Opportunities for Domestic Manufacturing and Retail  

While abolishing tax exemptions in Vietnam has created hurdles for importers, it has also opened doors for domestic manufacturers and retailers:  

– Boosting Domestic Production: Higher import costs make domestic goods more competitive, encouraging local manufacturers to expand their production.  

– Increased Support for Local Businesses: Retailers and consumers are showing greater interest in Vietnamese products, which can help foster innovation and growth in local industries.  

– Strengthening the Domestic Supply Chain: Businesses are now focusing on sourcing from local suppliers, reducing dependency on imported goods and improving logistical efficiency.  

By capitalizing on this opportunity, Vietnam can strengthen its domestic economy and reduce reliance on imports.

Challenges in Logistics and Supply Chain Management  

The tax changes have significant implications for logistics and supply chain management:  

– Rising Shipping Costs: Importing goods now incurs additional fees due to higher tax burdens, increasing overall shipping costs.  

– Shift to Local Sourcin: Businesses are reevaluating their supply chains to prioritize local sourcing, which reduces import-related expenses but requires significant logistical adjustments.  

– Longer Processing Times: Customs procedures are becoming more complex as businesses need to declare and pay taxes on every shipment, regardless of its value.  

To navigate these challenges, businesses are investing in more efficient logistics systems and exploring alternative trade routes to reduce costs.

Tax and Legal Compliance: A New Era of Accountability  

The removal abolishing tax exemptions in Vietnam places greater emphasis on compliance with tax laws and customs regulations.  

– Increased Administrative Burden: Importers must handle more paperwork, including detailed tax declarations, which can slow down operations.  

– Risk of Penalties: Non-compliance with the new rules can result in fines, delays, and reputational damage.  

– Need for Expert Support: Many businesses are turning to legal and tax consultants to ensure compliance and optimize their tax obligations.  

This shift highlights the need for businesses to stay updated on regulatory changes and implement robust compliance mechanisms.

Strategic Solutions for Businesses  

To thrive in this new environment, businesses must adopt proactive strategies:  

– Diversify Supply Chains: Explore alternative markets with favorable trade terms to reduce dependency on heavily taxed imports.  

– Optimize Pricing: Reassess pricing structures to balance competitiveness with profitability.  

– Leverage Trade Agreements: Take advantage of Vietnam’s trade agreements to minimize tariff impacts.  

– Promote Domestic Products: Shift focus toward promoting and selling locally produced goods to capitalize on growing consumer interest.  

– Invest in Technology: Use digital tools to streamline logistics, inventory management, and compliance processes.  

These solutions can help businesses mitigate the challenges of abolishing tax exemptions in Vietnam and position themselves for long-term success.

Future Outlook: A More Balanced Trade Environment  

In the long term, abolishing tax exemptions in Vietnam is expected to create a more balanced trade environment by reducing the reliance on low-value imported goods.  

– Strengthened Domestic Economy: By encouraging local production and consumption, this policy supports Vietnam’s economic development.  

– Greater Tax Revenue: The removal of exemptions increases tax collection, providing the government with additional resources for public services and infrastructure development.  

– Enhanced Regulatory Oversight: The shift promotes accountability and transparency in cross-border trade, reducing the risk of underreporting and tax evasion.  

Despite the initial disruptions, these changes are likely to pave the way for sustainable growth and a more resilient economy.

Long-Term Benefits for Vietnam’s Economy

While the abolishing tax exemptions in Vietnam policy may lead to short-term challenges for businesses and consumers, its long-term advantages for Vietnam’s economy are significant. This shift lays the groundwork for sustainable growth and a more balanced trade environment across multiple sectors.

1. Boosting Domestic Production and Innovation  

The increased cost of imported goods due to abolishing tax exemptions in Vietnam has motivated businesses and consumers to prioritize local products. This shift creates demand for domestically produced goods, fostering growth in industries such as manufacturing, agriculture, and retail.  

To remain competitive, Vietnamese businesses are encouraged to innovate, invest in advanced technologies, and improve product quality. Over time, this drive for innovation can strengthen the reputation and competitiveness of Vietnamese products in both domestic and international markets.

2. Reducing Dependency on Imports  

Vietnam’s reliance on imported goods, particularly low-value items, has long been a concern. The move to abolishing tax exemptions in Vietnam reduces this dependency by encouraging businesses to source materials and products locally.  

This shift not only supports the domestic supply chain but also mitigates risks associated with global supply disruptions or trade conflicts. A stronger local supply base contributes to a more self-sufficient and resilient economy.

3. Strengthening Tax Revenue and Public Investments  

One of the key benefits of abolishing tax exemptions in Vietnam is the increased tax revenue generated from import taxes and VAT. These funds provide the government with additional resources to invest in critical areas such as infrastructure, education, healthcare, and technological advancements.  

These public investments not only enhance the quality of life for citizens but also create a more supportive environment for businesses, leading to broader economic growth.

4. Promoting Sustainable Trade Practices  

The policy discourages the over-importation of low-value goods, which often contributes to waste and inefficiency. By shifting focus to higher-value imports and encouraging local production, abolishing tax exemptions in Vietnam promotes sustainable trade practices that align with global economic and environmental trends.

By addressing these areas, the policy shift towards abolishing tax exemptions in Vietnam serves as a catalyst for Vietnam’s long-term economic development, fostering innovation, self-reliance, and sustainability.

The abolition abolishing tax exemptions in Vietnam for goods under 1 million VND represents a significant transformation in the country’s trade and tax policies. While it has introduced challenges for importers, e-commerce platforms, and consumers, it also offers opportunities to strengthen domestic industries and improve regulatory compliance.  

This turning point calls for collaboration, innovation, and resilience from all stakeholders to ensure Vietnam continues to thrive in the evolving global market.  

About ANT Lawyers, a Law Firm in Vietnam

We help clients overcome cultural barriers and achieve their strategic and financial outcomes, while ensuring the best interest rate protection, risk mitigation and regulatory compliance. ANT lawyers has lawyers in Ho Chi Minh city, Hanoi,  and Danang, and will help customers in doing business in Vietnam.

Source: https://antlawyers.vn/update/abolishing-tax-exemptions-in-vietnam.html