Vietnam considers raising tax-free revenue threshold for small businesses

Experts view this as a positive move but stress that it requires careful consideration to effectively promote business growth.

A positive signal

The Ministry of Finance recently submitted a report to Prime Minister Pham Minh Chinh and Deputy Prime Minister Ho Duc Phoc addressing feedback from National Assembly deputies on the revised Personal Income Tax Law. One of the most discussed proposals is the adjustment of tax policy for individual and household businesses specifically, raising the tax-exempt revenue threshold substantially higher than previously planned. The new method also favors small businesses, as taxable revenue would be calculated only on the amount exceeding the exemption level.

For example, if the proposed threshold of VND500 million (US$18,957) per year is adopted, a household business earning VND510 million annually would pay tax only on VND10 million, instead of on VND510 million as before. Additionally, the proposal introduces a new method of calculating tax based on actual income, allowing businesses to deduct expenses before tax is applied - a change widely welcomed by small business owners.

However, some argue that even this proposed level is outdated before implementation. Many experts and business owners believe that a VND1 billion annual threshold would be more reasonable, reflecting current costs and inflation.

Ma Thi Cham, who runs a home interior business in Ho Chi Minh City’s Tan Thong Hoi Commune, supports the VND1 billion threshold suggested by experts. She explains that in her industry, revenues may appear high, but profits are modest due to significant input costs. Therefore, setting the limit at VND500 million still places an undue burden on small traders.

Similarly, Ho Cao Viet, who operates a dental clinic in HCMC’s An Khanh Ward, noted that medical equipment and materials are expensive, and annual revenues in the billions of dong are common, though not excessive. He suggested that healthcare should have a tailored tax policy, as excessive taxation could push up service prices and reduce access to care.

Doctor Vo Thi Dem, who runs a maternity clinic in Xuan Hoa Ward, echoed the view that taxes should be calculated on net income, not gross revenue, because running a clinic involves high costs — from rent and staff to medical supplies.

Tran Minh Tung, owner of a construction materials store, added that his sector has high revenue but low margins. Taxing based on total revenue, he said, is unfair. “People say if we want to deduct expenses, we should become a company. But small businesses can’t handle the added complexity and cost of incorporation, especially when the market is already tough,” he noted.

Lawmakers need to consider the tax level for specific sectors

Associate Professor Le Xuan Truong, Head of the Tax and Customs Department at the Academy of Finance, said the new VND500 million threshold aligns with current average income levels and represents progress. Under the proposal, household businesses would only pay tax on revenue exceeding the threshold, making the system more equitable than before.

Chairwoman Nguyen Thi Cuc of the Vietnam Tax Consultants’ Association called the proposal “good news” for small businesses but reiterated her long-standing recommendation to set the exemption threshold at VND1 billion per year, a figure broadly supported by the business community. She noted that developed countries often exempt small-scale, subsistence-level business operators from income tax altogether. The VND1 billion level, she added, is consistent with the National Assembly’s recent decision to increase personal income tax deductions to VND15.5 million per taxpayer and VND6.2 million per dependent per month.

Tax expert Nguyen Ngoc Tu of Hanoi University of Business and Technology agreed that the proposed VND500 million threshold is still too low. Experts also caution that different sectors have vastly different cost structures. Some require large upfront capital but yield low profit margins. Applying a “one-size-fits-all” tax rule could lead to inequity. Therefore, the Ministry of Finance should conduct detailed studies to identify which groups truly fall within taxable income levels.

Ultimately, experts agree that while ensuring fiscal revenue is important, tax policy should primarily aim to support economic growth and entrepreneurship providing room for small and household businesses to expand and formalize over time.