Finance Ministry proposes corporate income tax exemption and raises thresholds for personal income tax and VAT exemptions for small businesses

Summary: The Ministry of Finance is seeking public feedback on a draft law that would amend and supplement several provisions of the Personal Income Tax Law, the Corporate Income Tax Law, and the Value-Added Tax Law. The proposals include adjusting the thresholds for the personal income tax exemption and for VAT exemptions for households and individuals engaged in production and business, and introducing a corporate income tax exemption for small enterprises. Rationale and context: The policy changes aim to implement the Politburo's guidance in Resolution 68-NQ/TW dated May 4, 2025 on developing the private economy rapidly, sustainably, and with high quality; to specify policies that encourage household businesses to convert to formal enterprises; to modernize governance and tax administration to simplify accounting and tax compliance; and to abolish the lump-sum tax regime for households no later than 2026. By 2030, the goal is to have 2 million enterprises in the economy. Legal and policy details: The Ministry notes there is sufficient political and legal basis to revise the Personal Income Tax and Value-Added Tax regimes and to adjust thresholds as conditions change. Key proposed changes include: • Personal income tax: raise the annual revenue threshold for residents engaged in production and business that is not subject to personal income tax to 500 million dong per year. • VAT: raise the annual revenue threshold for households and individuals producing and trading goods and services that are not subject to VAT to 500 million dong per year. • Corporate income tax: introduce a corporate income tax exemption for small enterprises. Implementation and transitional measures: The draft contemplates that these policies would take effect in 2026, with the Government given authority to determine the exact thresholds via government decree as part of aligning with the broader reform goals. The Government has already issued related policy guidance (e.g., Decree 20/2026/ND-CP detailing and guiding the implementation of resolutions including 198/2025/QH15) to support the transition from lump-sum to declared tax regimes and to promote formalization. Budget and macro effects: The Finance Ministry acknowledges that raising thresholds and introducing exemptions may reduce short-term tax revenue, but argues these measures would support private sector growth, boost productivity, and, in the long run, contribute to stable and sustainable growth. The reform is designed to complement other tax and non-tax supports to help households and small businesses weather economic fluctuations and rising input costs. Specific policy content and structure: The draft includes amendments to three laws (PIT, CIT, and VAT) and outlines four sections: (1) PIT thresholds for individuals; (2) VAT thresholds for households and individuals not engaged in business; (3) new provisions on corporate income tax exemptions for small enterprises (including a proposed 14b/14b-like insertion indicating exemption for enterprises with revenue below government-defined thresholds; and (4) general provisions and effective date. The proposals are framed within the context of broader policy goals and are intended to be implemented through subsequent decrees and regulations. Impact and rationale for reform: The Finance Ministry argues that these changes would encourage private sector development, support the transition of households to formal enterprises, promote transparency and tax compliance, and ultimately contribute to macroeconomic stability and growth—even if short-term budgetary impacts may occur. The overall objective is to create a more equitable, growth-oriented tax regime that aligns with the nation’s development strategy and targets for private sector expansion by 2030. For more details, see the draft law text and supporting analyses prepared by the Ministry of Finance.