Vietnam – Vietnam is preparing for one of its most ambitious economic shifts in decades, with a landmark decision to abolish the lump-sum tax system for small businesses starting in 2026. The move is a central pillar of Resolution 68, a reform blueprint unveiled in May to transform domestic private enterprises into the driving force of Vietnam’s economy by 2035.
For years, millions of household businesses have operated under fixed-rate taxes, where payments were estimated through informal consultations with local tax officials rather than formal accounting. This system, criticized for encouraging corruption and underreporting, will give way to a declaration-based regime requiring detailed bookkeeping and compliance with corporate standards.
The shift comes as Vietnam seeks to strengthen its revenue base. Tax intake in 2024 reached a record 1.6 quadrillion dong (about Rp988 trillion), yet the country’s tax-to-GDP ratio stood at just 16.8 percent in 2023, well below regional and OECD averages. Authorities argue that reform is necessary to sustain public investment in infrastructure projects, including high-speed rail and expressways, while preparing for rising social security costs linked to an aging population.
Beyond fiscal imperatives, the reform is intended to bolster fairness and competition in the private sector. Large firms with significant revenues have often benefited from the lump-sum system, paying less than they would under declaration rules. By requiring all businesses to comply, the government hopes to establish a level playing field that attracts investment and builds trust in state institutions.
The tax overhaul also dovetails with Vietnam’s anti-corruption campaign, which has already toppled two presidents and numerous senior officials since 2016. By reducing discretion in tax collection and mandating formal records, authorities aim to close loopholes that have long enabled bribery and favoritism within local offices.
Still, the transition is fraught with risks. Small businesses, many still recovering from the pandemic, warn that compliance costs, from purchasing new cash registers to training staff, could drive them out of business. Reports of market closures and protests underscore the social tensions brewing beneath the reform’s technocratic surface.
International observers see the reform as both a litmus test for governance and a critical step toward Vietnam’s ambition to emerge as a new “Asian Tiger.” Yet as experts such as Khac Giang Nguyen from Singapore’s ISEAS–Yusof Ishak Institute caution, success will hinge not just on rulemaking but on consistent, transparent, and equitable enforcement.
If effectively implemented, Vietnam’s new tax regime could reshape the country’s economic landscape, fueling domestic entrepreneurship and strengthening state capacity. But the challenge remains: balancing fiscal modernization with political stability and the survival of the very small enterprises it seeks to regulate.
