
These family-run enterprises primarily engage in sectors like retail, food services, and small transport solutions, characterized by limited scale and modest management expertise.
To access electronic invoices issued by the tax authority, these households will require internet connectivity and devices such as computers, smartphones, or tablets for registration and approval.
Given the diverse situations of these millions of households operating in areas with different developmental levels, specialists caution that a universal policy may not effectively cater to everyone’s needs.
For instance, if we take a household business with a 15 percent profit margin, their monthly earnings would only amount to VND10–15 million, which must cover living expenses, operational costs, and depreciation of assets.
As per current laws, household businesses face a combined VAT and personal income tax rate of 1.5 percent on their revenue. Consequently, on average, each household pays around VND1.5 million in taxes every month, representing about 10–15 percent of their profits.
The challenge isn’t solely the tax rate; it also revolves around how taxes are collected and the costs associated with compliance. With a shift towards electronic tax systems and a deduction-based declaration approach similar to larger businesses, these 2 million household enterprises will need to invest in technology and electronic invoicing applications while learning to manage periodic tax submissions and payments.
They may also find it necessary to hire accountants, which can be a significant challenge, particularly for those who lack digital literacy or access to accounting resources.
For tax authorities, the expenses involved in organizing, overseeing, and assisting with declarations for these 2 million households are also considerable. When factoring in the costs of compliance and collection—borne both by the households and the government—the total could potentially equal or exceed the profits generated by this small-business sector, calling into question the policy’s effectiveness.
Enhancing electronic taxation is crucial for promoting fairness and modernizing the tax system. However, this policy requires careful crafting, a well-thought-out timeline with consideration for risks and capabilities of various household categories, and a comprehensive cost-benefit analysis comparing collection expenses against actual revenue.
Failure to do so may lead to business shutdowns or the emergence of an underground economy, outcomes that contradict Vietnam’s objectives.
Nguyen Quoc Viet from the University of Economics (Vietnam National University, Hanoi) emphasizes the need for flexibility in implementation from tax authorities and local governments. A transitional phase lasting six months to a year should be established to assist household businesses in adapting to the new regulations, avoiding strict enforcement and excessive penalties.
Household businesses in Vietnam cover a wide spectrum, from street vendors and small eatery proprietors to manufacturers or wholesalers generating annual revenues of up to one billion dong. A rigid tax policy will either be excessively lenient for larger entities or unduly burdensome for the smaller ones.
The first step is to clarify the legal identity of household businesses. The legal framework should differentiate between individual enterprises and recognized entities.
Household businesses should be classified as sole proprietorships or single-owner enterprises and treated as distinct entities in tax and regulatory matters. Tax regulations for these entities should ideally align with personal income tax standards.
Dr. Le Duy Binh proposes categorizing household businesses into three taxation groups:
First, household businesses with revenues exceeding VND1 billion: Approximately 37,000 such households exist, and they should be encouraged, rather than compelled, to transition into formal business models, such as single-member LLCs, multi-member LLCs, or joint-stock companies.
This transition would entail adhering to accounting standards and complying with corporate income tax, similar to other businesses. It would also provide opportunities for cost deductions on inputs, transparent transactions, access to formal credit, and government support. Importantly, this would help integrate a portion of the economy that remains largely unregulated.
Second, household businesses earning between VND100 million and VND1 billion: These smaller sole proprietorships should be taxed based on personal income rather than revenue alone.
Third, micro-businesses with earnings under VND100 million: This category should be exempted from taxes but required to report their revenue periodically—such as annually—using a straightforward form.