HÀ NỘI — The Ministry of Finance said on Tuesday it is considering taxing household businesses on profits rather than total revenue, following public outcry over the revenue-based taxation system. 

Deputy Minister of Finance Cao Anh Tuấn on Tuesday provided updates on the draft amended Law on Personal Income Tax.

Under the draft law, taxes would be levied on profits rather than gross revenue, as previously proposed, and would apply to all household businesses with revenues above the taxable threshold. 

Specifically, household businesses with annual revenues below VNĐ3 billion (roughly US$114,000) that can accurately determine their expenses would pay tax at a rate of 15 per cent on their profits (defined as the difference between revenues and expenses). This is similar to the preferential corporate income tax applied to enterprises with similar revenue levels.

Those unable to determine their costs would continue to pay tax at fixed rates on revenue, ranging from 0.5 per cent to 2 per cent, depending on their operating sectors. However, these household businesses would be allowed to deduct a tax-free revenue threshold before tax is calculated. This means that household businesses would not have to pay tax on their entire revenue, as they do currently. 

For example, a household business earning VNĐ1.2 billion annually in revenue with a total expense of VNĐ1 billion currently pays tax of 1 per cent of revenue, or VNĐ12 million, regardless of expenses. Under the new proposal, the taxable income would be VNĐ200 million, resulting in a tax bill of VNĐ30 million at the 15 per cent rate.

In case costs exceed revenue, the household business would not have to pay tax.

Another example would be a small household business with annual revenue of VNĐ300 million, which currently pays a lump-sum tax of 1 per cent on total revenue, or VNĐ3 million. The new proposal would allow the deduction of VNĐ200 million, leaving a taxable income of VNĐ100 million and a tax bill of just VNĐ1.5 million.

This profit-based taxation approach would apply to all household businesses. Under the current plan, businesses are classified into three groups, with only those seeing annual revenue above VNĐ3 billion taxed on profits. These are taxed at a rate of 17 per cent, while smaller businesses would continue to be taxed on revenue.

Meanwhile, the proposal would increase the tax exemption revenue threshold from VNĐ100 million to VNĐ200 million, although this threshold has been widely criticised as outdated. The ministry said that it would continue to study an appropriate threshold to ensure fairness for salaried workers. 

Việt Nam has about 5.2 million household businesses nationwide.

State budget revenue from household businesses totalled VNĐ26 trillion last year. In the first half of this year, household businesses contributed VNĐ17 trillion to the State budget. — VNS