Vietnam Proposes 30% Income Tax Cut for Small Businesses

The Ministry of Finance of Vietnam has announced a proposal to reduce income tax by 30% for sole proprietors and legal entities with annual revenues not exceeding VND 10 billion (approximately USD 380,000). This proposed tax cut is expected to be applied directly during quarterly tax declarations for the two-year period of 2026-2027, allowing businesses to benefit from the reduction without waiting for year-end finalization. The initiative aims to improve cash flow for small and medium-sized enterprises (SMEs) and stimulate economic activity. Under the current tax system, tax reductions are often applied in lump sums during the year-end final tax settlement. However, this new proposal would enable businesses to estimate their annual revenue and directly deduct the 30% tax reduction from their quarterly declarations. For individual business households, the tax reduction would apply to all income derived from production and business activities if their revenue does not exceed VND 10 billion. Businesses that pay taxes through e-commerce platforms and digital service providers would also be eligible for similar benefits. If the actual revenue at year-end exceeds VND 10 billion, the taxpayer would be required to declare the difference and pay the remaining tax, but would not be subject to late payment penalties. If the revenue does not exceed the threshold, the reduced tax amount would be maintained. Similar measures are being considered for corporate income tax, targeting enterprises, cooperatives, and non-business units with annual revenues below VND 10 billion. The 30% tax reduction would be calculated on the total income for the year and would be applied even if the entity is already receiving other tax incentives, based on the remaining tax payable after other deductions. Companies would also be able to deduct the reduction amount from their quarterly provisional corporate income tax payments. The Ministry of Finance estimates that this tax reduction policy could lead to a budget revenue shortfall of approximately VND 6.7 trillion (around USD 255 million) over two years. However, it is projected that about 99.86% of individual business households and 81.1% of enterprises would benefit from this policy, with expectations of a positive ripple effect on the overall economy. Under Vietnam's single-party communist system, maintaining economic growth and ensuring the stability of people's livelihoods are paramount. Such tax incentive measures are crucial policy tools, especially during the economic recovery period following the COVID-19 pandemic, to strengthen the operational foundation of SMEs. Furthermore, for Vietnam, which has deep economic ties with China, enhancing the competitiveness of its domestic industries could also contribute to diversifying supply chains and mitigating geopolitical risks.