VAFI Raises Voices To Personal Income Tax Law

 

VAFI focused on two main issues. The first is the method to calculate income taxes on securities investment (capital transfer activities) and the second is whether the tax will be levied on bond investment.

 

The content of the draft stipulates that “taxable income from capital transfer activities is determined by subtracting the buying price from the selling price of securities and capital investment certificates in other forms, and expenditures related to the generation of incomes from the capital transfer activities.”

 

Mr Nguyen Hoang Hai, Secretary General of VAFI, said experience from other countries showed that it is almost impossible to apply this method of calculating taxes from securities investment based on the selling and buying prices of unlisted securities or transactions. The tax calculation is also very complex and costly.

At present, tens of thousands of people pursue securities investment as a business and do not have any other career for living. These people can be treated as individual businesses but they don’t have properties like real individual businesses. Further, they do not have their annual incomes discounted for family allowances and for dependants as individual businesses have.

Regarding tax rate, Clause 21 of the draft states that the income tax from capital transfer activity is 25 per cent. Compilers explain that the introduction of 25 per cent tax rate is to match corporate income tax and aims to end tax evasion. The introduction of the 25 per cent tax rate and the above argument are absolutely groundless. For securities investment organisations, it is easy to calculate investment fees and provision fund expenses. However, it is impossible for individual investors.

 

The nature of securities investment is very risky but indispensable for the economic development of any economy; thus the tax on securities investment is an exception and the rate is always lower than on production and business activities. No other country in the world imposes the 25 per cent tax rate, while the Vietnamese stock market is at the infant stage.

 

If the tax computation in the draft law is applied, expenses for securities trading will not be counted. In fact, it is only possible to count the exact the selling and buying prices of listed securities. And, if the tax is only based on the selling and buying prices and the fee is zero, securities investors will possibly incur a tax rate between 40 per cent and 100 per cent, or even higher if the selling price is lower than the buying price which is also added fees.

 

Because it is impossible to calculate securities trading fees, the common international method is to base tax on capital gains from buying and selling, and the rate is always much higher than corporate income tax. Normally, the tax rate on securities trading ranges between 5 per cent and 10 per cent. This is a kind of lump sum tax.

 

Hence, VAFI put forth the methods to calculate and collect taxes. Regarding listed taxes on concentrated bourses, the method of calculating lump sum tax will be levied on separate transactions: Based on the selling price of securities and with a tax rate from 0.05 per cent to 0.1 per cent. Securities companies are responsible for deducting taxes following each successful transaction of domestic individual investors. Regarding foreign individual investors, securities custody organisations (securities companies or custodian banks) will be responsible for deducting taxes for investors.

 

Regarding unconcentrated markets, the tax collection is possible for public companies with securities deposited at securities custodian centres. The tax must be in tune with a simple transfer process (possible via securities companies). Nonetheless, it is impractical to make a legal determination of the buying and selling price on each transaction. Therefore, the tax rate can be based on the securities face value, with a higher tax rate, 0.2 per cent for example.

 

According to statistics, the volume of shares transacted by listed companies and public companies accounted for over 90 per cent of total market value; therefore, it is not the right time to collecting taxes on securities transfer at companies that are not public companies.

 

The Vietnamese bond market is divided into three areas: corporate bonds, local government bonds (issued by local investment funds), and government bonds (issued by the Treasury, the Ministry of Finance or the development bank). Bond investments incur two taxes, tax on bond interest and tax on gains from bond trading.

 

In general, the Vietnamese bond market is developing more slowly than regional countries. The volume of bonds issued by companies and local governments accounted for a tiny proportion. The main volume of bond commodities is government bonds, with more than 90 per cent of total transaction volume.

 

If tax is imposed on capital gains from bond trading, who will pay taxes? The taxpayer is the government. In reality, when the Government issues public stocks or education stocks (these bonds are free from capital transfer tax and tax on gains), the interest rates on pubic stock and education bonds are lower than taxable government bonds.

 

If tax is imposed on government bond trading, the bond interest rate will obviously make a correlative rise. However, if the interest rate of government bonds is high, it is not good for macroeconomic management because it will push up interest rates on the financial market and will lead to inflation. Thus, levying taxes on government bonds is of no use, and would hurt macroeconomic management and bond prices. From the above analyses, VAFI said tax on bond transfer transactions should be excluded from the draft.

 

Regarding the corporate bond market, Mr Nguyen Hong Hai, Secretary General of VAFI, said the Vietnamese business system is not mature enough for the issuance of corporate bonds in large volume at low interest rates. By nature, corporate bonds are riskier than government bonds and the interest rate of corporate bonds is higher than that of government bonds.

 

From such analyses, VAFI said it is not the time to tax corporate bonds of all kinds of investors (institutions and individuals) to keep the corporate bond interest rate at low levels. In this way, Vietnam can encourage enterprises to issue bonds.
Thi Van