Proposing Elimination of CIT Top Rate at 35% to Boost Productivity
The ongoing discussion about the top personal income tax (PIT) rate in Vietnam revolves around its impact on wealth creation, labour market competitiveness, and tax avoidance.
Arguments For the 35% Tax Rate
The 35% top rate is seen as consistent with Vietnam's progressive tax structure, aiming to ensure higher earners contribute a fairer share of taxes, promoting fiscal equity. Retaining the 35% top rate also supports government revenue needed for social spending and infrastructure, which can indirectly promote wealth creation by improving public goods and services.
The government's recent proposals to reduce the number of tax brackets (from 7 to 5) while keeping the 35% cap aim to simplify tax administration and compliance, potentially reducing tax evasion and improving efficiency without reducing top-end tax progressivity.
Arguments Against the 35% Tax Rate
Critics argue that the 35% rate may discourage high-income earners and entrepreneurs, potentially hindering wealth creation and business investment. The steep jump to 35% at relatively moderate income levels (above VND 80 million per month, approximately $3,823) is seen as an obstacle to labour market competitiveness, possibly driving top talent to relocate to countries with lower tax burdens or to avoid taxes through informal means.
High marginal rates at the top can incentivize tax avoidance and evasion, as taxpayers might seek loopholes, offshore accounts, or underreport income to reduce their tax liability. Some experts criticize the old 7-bracket system for being too complex, with small differences in income causing significant tax jumps.
Impact Summary
| Aspect | Positive Impact of 35% Tax Rate | Negative Impact of 35% Tax Rate | |-------------------------|--------------------------------------------------------------|----------------------------------------------------------| | Wealth Creation | Generates government revenue for public investment | May reduce incentives for high earners to invest or innovate | | Labour Market Competitiveness | Maintains progressive taxation for equity | High rates may push skilled workers abroad or to the informal sector | | Tax Avoidance | Simplified bracket system can reduce compliance costs | High top rate may increase tax avoidance and evasion risks |
In 2025, the Vietnamese Ministry of Finance proposed maintaining the top 35% rate while reducing tax brackets from seven to five to simplify tax filing, improve administration, and keep the system aligned with global trends. This suggests the government sees value in the 35% cap for ensuring revenue and equity but acknowledges the need to reduce complexity and ease taxpayer burden.
The Draft Amendment and Reform Options
In the draft amendment to the Law on PIT, the Ministry of Finance maintains the current top rate of 35%. The highest rate applies to income exceeding VND80 million in the first option or VND100 million in the second option. The Ministry proposes reducing the number of PIT brackets from seven to five.
Được advocates for stronger reform to ease the tax burden on most earners while promoting compliance and transparency from high-income earners through restructuring the lower tax tiers. In both options, the lowest tax rate of 5% applies to taxable monthly income of VND10 million (US$400) after reduction. The draft proposes two options for reforms.
In conclusion, the 35% top personal income tax rate in Vietnam is defended as necessary for progressive taxation and revenue generation, but it faces criticism for potentially dampening wealth creation incentives and encouraging tax avoidance. Ongoing reforms reflect attempts to balance these concerns by streamlining brackets while keeping the top rate stable.
[1] Nguyen, T. (2022). A Review of the Debate on Vietnam's Top Personal Income Tax Rate. Journal of Vietnamese Economics, 45(2), 123-134.
[2] Ministry of Finance. (2025). Draft Amendment to the Law on Personal Income Tax. Hanoi: Ministry of Finance.
[3] Le, T. T. (2021). The Impact of Personal Income Tax Rates on Wealth Creation and Labour Market Competitiveness in Vietnam. Hanoi: Vietnam National University.
[4] Pham, N. V. (2020). Tax Avoidance and Evasion in Vietnam: An Analysis of the Personal Income Tax System. Ho Chi Minh City: Vietnam Chamber of Commerce and Industry.
- The maintainance of the 35% top rate in the proposed amendment to the Law on Personal Income Tax aligns with the Vietnamese government's goal to ensure a fairer tax contribution from higher earners, aiding in the promotion of fiscal equity.
- Critics of the 35% top rate argue that it may deter high-income earners and entrepreneurs, potentially impeding business finance and AI development, as they may seek to avoid taxes through informal channels or relocate to countries with lower tax burdens.
- The ongoing efforts to simplify the tax structure, like reducing the number of tax brackets from seven to five, aim to improve law and finance efficiency while minimizing tax avoidance, thus supporting business growth and innovation in Vietnam.
