Ensuring horizontal equity in personal income taxation: Commentary on Decree No. 253/2026/ND-CP and Circular No. 87/2026/TT-BTC

This study evaluates horizontal equity in Vietnam’s personal income tax law, focusing on Decree No. 253/2026/ND-CP and Circular No. 87/2026/TT-BTC. Although the new regulations recognize medical, educational, and dependent-care expenses, the fixed monthly income threshold of VND 3 million for dependents may create a cliff effect, fiscal drag, and benefit erosion. A minor increase in a dependent’s income may therefore eliminate the entire deduction and produce a disproportionate rise in the taxpayer’s liability. Drawing on Australia’s Zone Tax Offset and indexation practices in the European Union, the study recommends introducing gradually reduced deductions, automatic indexation based on inflation, and regional adjustments reflecting differences in living costs. These reforms would better align tax obligations with taxpayers’ actual ability to pay and strengthen flexibility, transparency, and horizontal equity in Vietnam’s personal income tax system.