Tax policies need to accurately reflect income.

Rising living costs have led many to believe that personal income tax policies need to be adjusted more flexibly to accurately reflect income and reduce the burden on workers.

Filing personal income tax returns at the Hanoi City Tax Department. Photo: Nam Anh

Reduce the financial burden on people.

Each month, Mr. Nguyen Van Hung and his wife (office workers in Hanoi) have a total income of approximately 38 million VND. After deducting rent, living expenses, and fixed costs, most of their remaining income is allocated to their two children, who are attending primary school and kindergarten.

According to Mr. Hung, tuition fees, meals at school, extra English classes, and skills classes for his two children alone cost about 12-15 million VND per month. When the children are sick and need hospitalization, the family incurs additional expenses of several million VND, leaving almost no savings.

"I'm not against paying taxes, but it would be more reasonable if we could deduct some of the costs of raising children, their education, or medical care, as these are all mandatory expenses," he shared.

These aspirations may soon become a reality as the Ministry of Finance has just submitted to the Government a draft Decree stipulating several provisions of the Personal Income Tax Law. The proposal suggests including medical and educational expenses as tax deductions, instead of only applying family allowance deductions as before.

The Ministry of Finance proposes allowing taxpayers to deduct up to 47 million VND per year for medical and education expenses before calculating personal income tax. The maximum deduction for medical expenses is 23 million VND per year and for education is 24 million VND per year. Thus, in addition to mandatory deductions such as social insurance, health insurance, and unemployment insurance, if a taxpayer has one dependent and incurs all medical and education expenses as stipulated, the total deduction could reach 307.4 million VND per year.

According to calculations, the new plan could reduce budget revenue by approximately 7,697 billion VND per year. However, from another perspective, this could also be seen as a way to "nurture revenue sources" in the long term.

According to Dr. Dao Le Trang Anh, senior lecturer in finance at RMIT University Vietnam, including expenses for education, healthcare, and childcare as deductible items in personal income tax calculations reflects a fundamental shift in Vietnam's tax policy approach.

The new approach is gradually shifting towards assessing the actual tax-paying capacity, meaning that only the income remaining after deducting essential expenses to maintain a basic standard of living is taxed. “This approach is also consistent with international practice, as many developed economies consider expenditures on education, healthcare, and childcare not only as personal consumption but also as investments in human capital and social welfare,” Dr. Dao Le Trang Anh observed.

Closer to actual financial pressure

According to the Organization for Economic Cooperation and Development (OECD) 2025 Taxing Wages report, deductions and tax credits related to family, children, and essential expenses play a crucial role in enhancing the fairness of the tax system. Vietnam's new proposal is a positive signal that personal income tax policy is gradually approaching international standards, while also more accurately reflecting the current financial pressures on Vietnamese families.

To ensure strict adherence to regulations and prevent abuse of the policy, the draft clearly stipulates that deductible expenses must be supported by valid invoices and documents. Specifically for medical expenses, the expenditure must be on the list prescribed by the Ministry of Health and must not overlap with other sources of support (such as insurance coverage or reimbursement by other agencies). Furthermore, this policy excludes cases where taxpayers have already benefited from other tax incentives for the same type of expense.

According to the planned schedule, the Decree will take effect from July 1, 2026, to align with the effective date of the main law. However, regulations directly related to income from business activities and salaries and wages of resident individuals will begin to be applied from the 2026 tax year.

However, according to Dr. Dao Le Trang Anh, for the policy to be effective when implemented, it is necessary to clearly define the scope and level of deductions for each group of expenses to ensure that support reaches the right target group. Experience in the US shows that medical expenses are only deductible when they exceed 7.5% of adjusted income, thereby helping the policy focus on those who truly have a significant financial burden and limiting unreasonable tax optimization.

Furthermore, the tax system needs to be designed to be simple, easy to understand, and convenient to implement in order to reduce compliance costs for taxpayers. If there are too many deductions with complex conditions, the declaration process will become cumbersome and prone to errors, especially for middle and low-income groups.

Furthermore, expanding tax breaks needs to be accompanied by solutions to improve tax administration efficiency in order to compensate for revenue shortfalls and ensure fiscal sustainability. Promoting data digitization across the tax, healthcare, and education sectors is also crucial for increasing transparency, reducing fraud, and improving policy implementation effectiveness.

According to Associate Professor Dr. Nguyen Thuong Lang, a lecturer at the National Economics University, the core issue is the ability of policies to respond promptly to the rapid changes in socio-economic life. In large cities like Hanoi and Ho Chi Minh City, the cost of living, housing, education, healthcare, and essential services have continuously increased in recent years, putting ever greater financial pressure on workers.

If the personal allowance deduction has to wait many years before being considered for adjustment, tax policy will struggle to keep pace with reality and easily fall into a "chasing after" situation. This not only reduces the effectiveness of supporting taxpayers but may also create additional pressure on salaried workers who are directly affected by rising living costs. The drafting committee needs to study and develop a more flexible adjustment mechanism, linked to economic indicators such as the Consumer Price Index (CPI) or the average living standard per capita.

"This approach will help make tax policy adjustments more automatic and realistic, instead of relying on lengthy revision cycles. This is also an experience adopted by many countries...", Mr. Lang emphasized.

According to Nhandan.vn

Source: https://baoangiang.com.vn/chinh-sach-thue-can-phan-anh-dung-thu-nhap-a487577.html