Vietnam's Top Income Tax Rate Among Southeast Asia's Highest

Vietnam's High Individual Income Tax Rate Sparks Debate

Vietnam’s individual income tax rate of 35% is among the highest in Southeast Asia, according to a report by Deloitte Vietnam. The company has urged for changes to the current system, highlighting concerns about its impact on economic growth and talent attraction.

Comparatively, countries like Thailand and the Philippines also have similar top rates, while Singapore maintains a lower rate of 24%, and Malaysia and Myanmar have rates of 30%. This disparity has raised questions about Vietnam’s position in the region and its alignment with international standards.

The Ministry of Finance recently proposed amendments to the Personal Income Tax Law, aiming to reduce the number of tax brackets from seven to five. However, the maximum marginal rate of 35% would remain unchanged, albeit with an increase in the income threshold from VND80 million per month to VND100 million. The ministry argues that this rate aligns with global practices, noting that countries such as Thailand, Indonesia, and the Philippines also apply a 35% rate, while China, South Korea, and Japan impose up to 45%.

In addition to maintaining the top rate, the proposal includes increasing deductions for health and education expenses, which could help reduce the overall tax burden. Despite these adjustments, many analysts believe the 35% rate is still too high.

Nguyen Thuy Duong, head of personal tax advisory at KPMG Vietnam, pointed out that Vietnam applies the 35% rate for income that is 10 times its per capita GDP, compared to Thailand’s 20 times and Indonesia’s 62 times. This means that the upper-middle class in Vietnam is subject to the highest rate, whereas in other countries, only the wealthiest individuals face such a rate.

KPMG recommends reducing the top rate from 35% to 30% to better align with international practices and improve Vietnam’s ability to attract skilled workers. This suggestion has been supported by the Ho Chi Minh City Tax Advisors and Agents Association and the Vietnam Automobile Manufacturers Association.

Experts argue that a lower tax rate can significantly influence foreign investment decisions, encourage legitimate wealth creation, and help prevent tax evasion. Some even advocate for a 25% cap. Phan Huu Nghi, deputy director of the Institute of Banking and Finance, believes a 25% rate would better suit Vietnam’s modest average income and support economic growth and investment. He suggests that as average incomes rise, the government can consider increasing the tax rate.

Vietnam’s per capita income has steadily increased, reaching $4,700 last year. The government has set ambitious targets to achieve high-income status by 2045. Vu Minh Khuong of the Lee Kuan Yew School of Public Policy in Singapore estimates that with a 6.5% annual GDP growth, per capita income could reach $15,000 by 2045 and $20,000 by 2050.

Personal income tax is now the third-largest source of revenue for the Vietnamese government, following value-added and corporate taxes. Last year, total revenues exceeded VND2 quadrillion, with personal income tax contributing VND189 trillion, a 20% increase from the previous year. It accounted for 9.3% of total revenues, compared to 5.3% in 2011.

A survey conducted by VnExpress in August found that 73% of respondents favored a maximum personal tax rate of 20–25%, while 7% preferred a 30% ceiling. Only 5% supported the current 35% cap. Even if the 35% rate were retained, analysts suggest that the thresholds should be raised to make the system more equitable.

Nguyen Van Duoc, director of Trong Tin Accounting and Tax Consulting, called for the threshold to be increased to VND120–150 million per month, rather than the proposed VND100 million. Duong also suggested that the 35% rate should apply to an income of 20 times the per capita GDP, meaning the threshold should be raised to VND120 million.

Deloitte Vietnam has urged the government to raise the thresholds for all tax brackets, particularly at higher levels, to align with economic growth and attract talent. This call for reform reflects a broader need to balance fiscal policy with the goal of fostering a competitive and sustainable economy.