In Vietnam, a sweeping tax overhaul is set to transform the economic landscape, reaching from bustling street vendors selling banh mi to family-run workshops in narrow alleyways. The government’s ambitious plan, embedded in Resolution 68, aims to propel the nation toward becoming Asia’s next “tiger economy” by 2045, following in the footsteps of South Korea and Singapore. Yet, as the country phases out its simplified lump-sum tax system by 2026, replacing it with a more rigorous declaration system, many fear the burden on small businesses could undermine the very growth Hanoi seeks to foster.
A Bold Vision for Economic Ascendancy
Vietnam’s tax reform is a cornerstone of Resolution 68, unveiled in May 2025, which positions homegrown private companies as the primary engine of economic growth by 2035. The resolution seeks to elevate domestic firms above the traditionally favored foreign corporations and state-owned enterprises. It promises deregulation, enhanced protections, and better access to capital for local businesses, alongside groundbreaking legal principles such as property rights, fair competition, and contract enforcement.
At the heart of this strategy is a pressing need to boost tax revenue. Vietnam’s tax-to-GDP ratio, at 16.8% in 2023, lags behind the Asia-Pacific average of 19.5% and is far below the OECD average of 33%, according to data from the Organization for Economic Cooperation and Development (OECD). With public debt capped by the Communist Party of Vietnam (CPV), the government must find alternative revenue streams to fund ambitious projects. This year alone, infrastructure spending is slated to surge by nearly 40% to $36 billion, targeting mega-projects like high-speed rail and expressways seen as critical to future growth. 
Moreover, Vietnam faces a demographic challenge. The United Nations projects that the proportion of citizens over 65 will rise from 8.4% in 2020 to 20% by 2050. With few retirees currently receiving adequate pensions, social security costs are set to escalate, adding further strain on public finances. The General Department of Taxation reported a record tax collection of 1.6 quadrillion dong (~US$66.7 billion) in 2024, predominantly from domestic sources, signaling the government’s intent to expand this base. In the first five months of 2025, collections from small businesses alone reached $560 million, a 26% increase year-on-year.
From Lump-Sum to Declaration: A Tax System Overhaul
For decades, Vietnam’s small businesses—numbering around 2 million household enterprises and entrepreneurs as of early 2025, per the Finance Ministry—have relied on a lump-sum tax system. This method calculates taxes based on estimated revenue, often determined through informal consultations with local officials, rather than formal accounting. Only about 6,000 businesses had adopted the more complex declaration system by the start of this year. However, from 2026, the lump-sum approach will be entirely abolished, mandating all registered businesses to adopt the declaration system, which requires detailed record-keeping and formal reporting.
The shift is partly motivated by a desire to modernize tax collection and curb corruption, a persistent issue in revenue offices. Since 2016, the CPV’s anti-graft campaign has ousted two presidents, several cabinet ministers, and thousands of lower-ranking officials. Analysts and officials argue that the lump-sum system often allows high-revenue companies to underpay taxes, undermining fair competition. The declaration system, by contrast, is expected to ensure more accurate contributions, aligning with the government’s push for equity in the private sector.
Small Businesses Under Pressure
While the government’s goals of increasing revenue and fostering fairness are widely acknowledged, the transition poses significant challenges for small businesses, many of which are still reeling from the economic fallout of the COVID-19 pandemic. The new system demands investments in expensive cash registers, training in bookkeeping, and compliance with complex administrative procedures. Recent updates to laws on VAT, corporate taxes, and personal income tax, effective from July 2025, have further intensified these requirements, alongside new invoicing and information-sharing protocols introduced last month.
The impact is already visible. Videos of distressed store owners lamenting steep tax hikes have circulated widely online in recent weeks, a rare display of public discontent in a nation where dissent is tightly controlled by the CPV. Reports indicate significant closures in markets, with Radio Free Asia noting in June 2025 that 80% of shops in Nghe An province’s largest market have shuttered in recent months. While Hanoi officials have acknowledged that nearly 3,000 household businesses ceased operations in May and June, they maintain that only 263 had revenues high enough to be affected by the new tax rules, denying a direct link between the reforms and closures.
Additional pressures compound the situation. Small businesses have faced uncertainty over potential US tariffs on Vietnamese goods, though Hanoi recently negotiated a reduction from a proposed 46% to 20%. On the ground, grievances persist about alleged shakedowns by corrupt police, further eroding trust in authorities.
Balancing Ambition with Backlash
Analysts caution that while the objectives of Resolution 68 are commendable, implementation will be key to its success. Khac Giang Nguyen, a visiting fellow at the ISEAS–Yusof Ishak Institute in Singapore, highlighted the delicate balance Vietnam must strike. “Both aims are laudable, but raising more revenue is tricky because tightening compliance risks political backlash,” he said in a recent statement. He emphasized that success hinges on fair and transparent enforcement, free from the rent-seeking behaviors that have long plagued public trust.
Others warn of unintended consequences. Zachary Abuza, a professor at the National War College in Washington, pointed to the potential for the reforms to drive small businesses under. “While the government wants the private sector to drive growth, the new tax demands appear to have the unintended consequence of putting many people out of business” he noted in an interview with a regional outlet. His observation underscores a critical tension: can Vietnam nurture its entrepreneurial base while imposing stricter fiscal demands?
Economic Goals Versus Ground Realities
Vietnam’s tax revolution reflects a broader ambition to redefine its economic identity. Resolution 68 is not merely about revenue; it’s a blueprint for structural transformation, aiming to create a level playing field where domestic firms can thrive. The government has sweetened the deal with years of tax exemptions and reduced administrative costs for businesses and workers, alongside doubling the income threshold for personal tax liability. Yet, for many small vendors and family enterprises, these incentives may feel distant compared to the immediate costs of compliance.
The stakes are high. Infrastructure development and social security are non-negotiable priorities for a nation racing against time to capitalize on its demographic dividend before an aging population shifts the balance. But if the tax overhaul alienates the very businesses it seeks to empower, Vietnam risks stunting the grassroots dynamism that has long fueled its growth.
Looking Ahead: A Tiger in Waiting?
As Vietnam navigates this pivotal moment, the question looms: will its tax revolution pave the way for economic ascendancy, or will it overburden the small businesses that form the backbone of its economy? The coming months will test Hanoi’s ability to balance ambitious fiscal goals with the realities faced by street vendors and market stalls. With the full transition to the declaration system set for 2026, the nation stands at a crossroads, its aspirations to become Asia’s next tiger economy hanging in a delicate balance.
