Personal Income Tax: Tax on Capital Gain from Stock Trading

 

Many said the nature of savings deposit of Vietnamese people is not a type of investment but a process of setting aside a portion of current income for future use, such as for illness or retirement. Most Vietnamese civil servants follow this way of savings. In several developed nations, the social security is good and the elderly pension is enough for living, thus, putting money into banks is a method of investment.

 

Mr Huynh Lap Thanh, who is the congressman of the National Assembly XI and the vice chairman of Ho Chi Minh City People’s Council, said deposit savings should not be subjected to personal income tax. These people, either elderly or incapable, have small sums of money that are sufficient to invest in business, thus, they put into banks to have small interests. Furthermore, their savings are used by the bank for production and business. The profit from the usage of their savings has already imposed tax. Hence, it is irrational for individuals to pay personal income tax.

 

Mr Hua Chu Khem, Director of Soc Trang Director of Science, Technology and Environment Department, said a tax on interest of deposit savings will discourage people to put their idle money into banks, thus adversely affecting the mobilisation of capital for development investment. At present, banks are complaining about the inability to mobilise capital from this channel. Sharing this view, Mr Nguyen Van Tri, the Vinh Phuc Province member of National Assembly XI, added that the feasibility of collecting tax from savings interest is not high because they people may split their money into various accounts of different owners and put into many banks at the same time. Therefore, it is difficulty to sum up total income to discount and collect tax.

 

Moreover, the price slippage and inflation are at the rates of concerns and many economic experts forecast that if the income tax is imposed on deposit savings, the deposit of savings is meaningless. The interest rate is about 8.4 per cent on average. If subtracted by inflation rate of 6.7 per cent in 2006, (possibly 7-7.5 per cent in 2007), the net interest rate is only about 1.4 per cent. Experts said the inflation rate may be higher when the Vietnamese economy is growing at fast speed. If incomes from bank interests are levied tax at estimated 5 per cent, it is no use putting money into the bank. 

 

Tax on capital gain from stock investment 

In the draft Law on Personal Income Tax discussed by the National Assembly last year, the tax on capital gains from stock trading was not mentioned because this is regarded an irregular and hard-to-control income. However, from early 2007, the stock market has boomed and many became billionaires from trading stocks. This prompted policymakers to consider the tax collection on incomes of stock investors.

 

The Ordinance on Tax on High-income Earners has not provided a tax imposed on stock investors but the draft Law on Personal Income Tax mentioned this. The targets are incomes from dividends, transfer of stocks and incomes of foreign stock investors without residential status in Vietnam. As the form of tax collection, at the meeting with businesspeople discussing tax procedure reform, Deputy Finance Minister Truong Chi Trung said securities companies will temporarily collect and discount on accounts. The payment settlement will be carried out at the end of the year. After reading the balance sheet, if the capital gain is not enough for taxation, the account discount will be refunded to investors.

 

As for the time to apply personal income tax on stock investors, Trung said the tax on dividends may not be applied at this point of time because the Personal Income Tax has not been ratified. Meanwhile, the income from transfer of stocks is booming and the stock investors gain a lot from this; thus, competent authorities are considered a tax on the transfer of stocks.