Abolition of flat tax for business households: Necessary to create a fair business environment

In the context of promoting the private economic sector and promoting the reform of the tax system, the termination of the form of flat tax for business households is a key content, attracting attention from state management agencies as well as the business community. Presumptive tax according to the Law on Tax Administration 2019 (amended and supplemented in 2020) is a method of determining tax liabilities based on presumptive turnover fixed by tax authorities, applicable to small-scale business households that do not have an adequate accounting system. Practice shows that this method still has many limitations, affecting publicity, transparency and fairness in the business environment.

Resolution 68-NQ/TW dated 04/5/2025 of the Politburo and Decree 70/2025/ND-CP of the Government are breakthrough and innovative regulations to adjust the long-standing existence of presumptive tax for business households in order to create a transparent business environment equality and fairness among business entities.

Flat tax - convenient but unfair

Although the flat tax method was developed to simplify tax obligations for small-scale business households, helping to reduce the burden of procedures and compliance costs, in practice, this method reveals many limitations in terms of legal and practical management. First of all, transparency in determining tax obligations is almost not guaranteed. According to the provisions of Article 51 of the Law on Tax Administration 2019 guided by Article 13 of Circular 40/2021/TT-BTC, the presumptive tax is based on the declaration of business households and the database and opinions of the commune-level Tax Advisory Council to determine the tax rate, which does not reflect the actual revenue of business households. This determination principle has created a legal loophole for low or dishonest revenue declaration, leading to tax evasion and loss of state budget revenue. As a result, tax revenues do not accurately reflect the actual business scale and efficiency of business households.

In addition, the flat tax method also causes inequality in the competitive environment. Although business households have the same size and actual revenue as tax-declaring enterprises, they are subject to significantly lower tax rates due to the application of flat tax, leading to the risk of inequality and damage to businesses complying with tax laws. This disparity reduces healthy competition between business entities, especially in the context that enterprises are having to fulfill their tax obligations with a relatively large contribution. That negatively affects the sustainable development of the economy.

The flat tax method also poses many difficulties for tax authorities in supervising, inspecting and controlling the tax obligations of taxpayers. The lack of accurate data on actual revenue makes it impossible for tax authorities to properly assess the level of compliance with tax laws, and at the same time reduces the efficiency of tax inspection and examination. According to statistics from the General Department of Taxation, as of March 2025, the country currently has nearly 2 million business households applying the flat tax method, while only about 6,000 households declare tax, with an average flat tax rate of 672,300 VND/month/household – significantly lower than the tax obligation as declared[1].

The above shortcomings have clearly revealed the inadequacies in current regulations when there is no effective mechanism to control the actual revenue of business households.

Transformation roadmap

According to Article 51 of the Law on Tax Administration 2019, presumptive tax is applied to taxpayers who are business households that do not implement or do not fully implement the accounting regime and are not eligible to pay tax by the declaration method. This is a tax method based on flat revenue fixed by the tax authority, guided in detail in Circular 40/2021/TT-BTC, in order to create favorable conditions for small business households that do not have a complete accounting system. However, practice shows that the flat tax method has many inadequacies such as lack of transparency, easy to generate fraud, causing tax revenue loss and creating unfair competition between business households and enterprises.

Faced with this situation, Resolution 68-NQ/TW dated May 4, 2025 of the Politburo ("Resolution 68") has officially set out the policy of abolishing the form of flat tax for business households, with a deadline of 2026 at the latest. This policy has been concretized in Decree 70/2025/ND-CP, effective from June 1, 2025, whereby it is mandatory for business households with a turnover of VND 1 billion/year or more to switch to tax declaration and use e-invoices with data connection with tax authorities. This is an important realization step, transforming from the flat tax method to tax declaration based on actual data, contributing to increasing transparency and fairness in tax administration.

The roadmap for abolishing the form of presumptive tax in the above documents is considered in line with the orientation of modernizing tax administration in accordance with the provisions of the Law on Tax Administration 2019, in which taxpayers are encouraged to declare taxes based on actual revenue, and at the same time strengthen the application of information technology in management activities,  replacing the method of capital fixed tax based on revenue fixation.

Business households in Vietnam. Source: Government News

Impact on business households

According to the provisions of Clause 8, Article 1 of Decree 70/2025/ND-CP, from June 1, 2025, business households with a turnover of VND 1 billion/year or more are required to declare tax according to the declaration method and use e-invoices. This is not only a simple change in tax payment methods but also marks an important transformation in tax management for business households, from a flat tax mechanism based on estimated revenue to a transparent tax system, based on actual revenue and electronic data directly connected to tax authorities. This transformation aims to overcome the inherent limitations of flat taxation such as lack of transparency, tax revenue loss and unfair competition between business types.

However, the application of the new regulations also poses significant challenges for business households, especially small and medium-sized households. The transformation requires business households to urgently complete legal documents, build a suitable accounting system and get acquainted with e-invoice technology - requirements that many business households still have limited knowledge, skills and financial resources. If there is no preparation and compliance with regulations, business households will face the risk of being severely sanctioned according to the provisions of Decree 125/2020/ND-CP, including fines, tax arrears, and even tax enforcement measures, directly affecting their business activities and reputation.

In addition, this transformation process is not only a technical problem but also a fundamental change in the management thinking of business households. The transition from manual management to digital management, from paying taxes at a fixed rate to declaring based on actual revenue requires business households to improve their governance, accounting and legal compliance capabilities. This is a big challenge in terms of awareness and adaptability, especially in the context that many business households still operate according to traditional habits and do not have a methodical accounting system.

Strategic reform step

The abolition of flat tax has been clearly established in Resolution No. 68-NQ/TW and concretized in Decree No. 70/2025/ND-CP as a strategic reform step, aiming at many simultaneous goals. This solution is not only a technical change, but also an important part of the roadmap for comprehensive reform of tax policies, in line with the trend of digital transformation and modernization of state management.

First of all, the transition from flat tax to the tax declaration mechanism and the use of e-invoices will contribute to perfecting the legal framework on taxation, ensuring transparency in determining tax obligations, in accordance with the Law on Tax Administration and relevant legal documents.

Secondly, the uniform application of the tax administration mechanism between business households and enterprises will narrow the gap in tax obligations, contributing to establishing a more equal and healthier competitive ground in the market, making the State's ambition to have 2 million enterprises by 2030 more feasible.

Thirdly, e-invoices have a direct data connection with tax authorities to help improve the efficiency of revenue monitoring, minimize budget revenue loss and prevent negative behaviors in tax administration.

In general, the elimination of the form of flat tax for business households is a necessary reform step and has a solid legal basis, clearly affirmed in Resolution 68-NQ/TW and Decree 70/2025/ND-CP. The synchronous implementation of this policy will contribute to improving transparency and fairness in the tax system, and at the same time promote the healthy and sustainable development of the private economic sector.

Lawyer Cao Nguyen Bao Lien

HM&P Law Firm