In several countries, the highest income tax rate of 35% only applies to annual earnings between $164,000 and $328,000. In Vietnam, however, this rate could be imposed on those earning just $4,120 per month. Experts are calling for wider gaps between tax brackets and a significant increase in the taxable income threshold.

Why is the 35% rate still in place?

The Ministry of Finance has recently sought feedback from government members on a revised draft of the amended Personal Income Tax Law to be submitted to the National Assembly Standing Committee.

In addressing issues related to the progressive tax schedule, the Ministry explained that it had reviewed and adjusted the tax brackets applied to wages and salaries.

Accordingly, the revised draft reduces the second-tier tax rate from 15% to 10%, and the third-tier rate from 25% to 20%, as follows:

According to the Ministry, under this new structure, all current taxpayers will see reduced tax obligations compared to the existing system. Additionally, the revised structure prevents abrupt jumps between brackets, aiming for a more reasonable progression.

Notably, the Ministry considers the 35% top tax rate (Tier 5) to be reasonable, stating that it aligns with average global and ASEAN rates. Thailand, Indonesia, and the Philippines also apply a 35% top rate, while China’s is 45%.

The Ministry also noted that reducing the rate from 35% to 30% might be interpreted as a tax break for the wealthy.

Speaking to VietNamNet, Le Thi Thuy, CEO of Bach Khoa Consulting Services Co., said she appreciated the adjustments to the second and third-tier tax rates, which reflect public input. However, she expressed regret that the 35% rate remains unchanged, despite repeated recommendations from her and other experts to eliminate it due to its excessive burden.

Dr. Nguyen Ngoc Tu, a lecturer at Hanoi University of Business and Technology, has also long advocated scrapping the 35% rate, calling it too high and inappropriate. He warned that such a steep rate could hinder Vietnam’s efforts to attract high-quality international talent.

According to Dr. Tu, although Thailand, the Philippines, and Indonesia also use the 35% rate, they apply it to much higher income groups. In Indonesia, this threshold equates to $328,000 per year; in Thailand, between $106,600 and $123,000; and in the Philippines, about $164,000. This means taxpayers in those countries only face the top rate if they earn between $13,750 and $27,300 per month.

By contrast, in Vietnam, anyone earning over $4,120 per month is already subject to the 35% rate. Dr. Tu also cited Singapore, where the top rate is just 24%, applied only to annual incomes exceeding 1 million SGD (approximately $820,000).

He concluded that if Vietnam insists on keeping the 35% rate for salaried workers, it must significantly increase the income threshold. The current $3,300/month threshold (recently proposed to rise to $4,120) has been in place for 17 years, and the new limit still falls short.

Dr. Tu recommended lifting the threshold to around $12,360/month to better align with regional standards.

Calls to widen income brackets

Under the latest draft law, the current income gaps between tax brackets are set at 10, 20, 30, and 40 million VND (approximately $412, $825, $1,237, and $1,650).

Le Thi Thuy argued that these gaps should be widened to ensure that salaried individuals can maintain a decent standard of living while achieving a fairer balance between tax contributions and income.

She proposed keeping the first bracket at $412/month but expanding the second bracket to cover $412–$1,650, and the third from $1,650–$3,300.

Sharing this view, Dr. Nguyen Ngoc Tu pointed out that the first three brackets apply to the majority of middle-income earners. However, each jump between brackets results in a 10% increase in the tax rate, and the narrow income ranges make it easy to “jump brackets,” leading to sudden increases in tax burden.

He suggested a revised structure: the first bracket up to $825/month, the second from $825–$2,885, the third from $2,885–$4,940, the fourth from $4,940–$7,400, and the fifth for income above $7,400/month.

Dr. Tu said that lowering tax rates and widening the gaps between brackets would reduce sudden increases in tax obligations and reflect the principle of easing the financial burden on citizens. When income brackets are too close, taxpayers can quickly move into higher brackets, leading to disproportionate tax burdens and stress for salaried employees.

Nguyen Le