Journal of Tax Reform | 2026
Authors: Phuong N.C.; Na L.T.
DOI: 10.15826/jtr.2026.12.2.255
Journal: Journal of Tax Reform
Year: 2026
Publisher: Ural Federal University
Document Type: Article
Open Access: All Open Access; Gold Open Access
Cited by: 0
Personal income tax (PIT) reform represents a key instrument for balancing equity, efficiency, and administrative simplicity in emerging economies. In December 2025, Vietnam introduced a major PIT reform that reduced the number of tax brackets from seven to five and adjusted income thresholds to address long-standing bracket creep caused by cumulative inflation. This paper provides a quantitative evaluation of the reform using a simulation-based approach grounded in representative taxpayer methodology. Eight income profiles reflecting Vietnam’s formal sector wage distribution are used to compare tax liabilities under the pre-reform and post-reform schedules. The analysis is guided by the equity – efficiency – simplicity framework and insights from optimal income taxation theory. Results indicate that the reform generates asymmetric but broadly progressive outcomes. Middle-income taxpayers experience the largest relative reductions in tax burdens, ranging from 20% to 42.5%, while low-income groups benefit from threshold adjustments that partially offset inflationary effects. Despite these reductions, vertical equity is preserved, as average tax rates continue to increase monotonically with income. The reform also smooths the effective marginal tax rate structure, potentially reducing distortionary incentives associated with bracket discontinuities. From a fiscal perspective, the reform is associated with a short-term decline in PIT revenues, estimated at 0.23–0.30% of GDP under static assumptions. However, this impact may be partially mitigated through improved compliance and tax administration. Compared to similar reforms in Asia, Vietnam’s approach represents a moderate and targeted adjustment that prioritizes middle-income relief while maintaining a relatively high-top marginal rate. The findings contribute to the literature by demonstrating the applicability of simulation-based methods in data-constrained settings and by providing policy-relevant insights for PIT design in developing economies. © Phuong N.C., Na L.T., 2026.
equity-efficiency trade-off; optimal taxation; personal income tax; simulation analysis; tax rates; tax reform; Vietnam