The State Securities Commission of Vietnam (SSC) said Vietnam now has some 1.2 million securities investors, 47 fund management companies and 30 investment funds. Nonetheless, up to 90 percent are retail investors with limited professional knowledge and skills. Roles of domestic investment funds are not as good as expected as the public lacks interest in investment through funds and the funds themselves fail to prove their professionalism and efficiency in investment activities in the market.
In need of more reasonable tax policy
The important roles of institutional investors to the stock market are undeniable, because they have positive effects on capital markets and help improve risk management capabilities. However, their operations are fairly vague.
Many reasons have been cited for their blurriness in Vietnam. The shortage of a proper tax policy discourages retail investors from investing through funds. In fact, fund management companies do not urgently need tax incentives but retail investors are actually needed to be encouraged by tax policies in order to reduce the proportion of retail investors and hold back the mob sentiment.
At present, fund investors (both individuals and institutions) have not received any tax incentives. Accordingly, individual investors are levied a 5 percent tax on dividend incomes paid by funds while institutional investors are subjected 25 percent on profits or 0.1 percent on the value of assets transferred.
At a recent seminar entitled “Building and enforcing tax laws applied to securities investment funds” jointly held by the Tax Policy Department under the Ministry of Finance and the State Securities Commission, many representatives of investment funds pointed out improper points in tax policies applied to operations of investment funds.
Currently, the determination of capital transfer tax is carried out in accordance with Circular 130/2008, Circular 134/2008 and Circular 84/2008 and is specified in the Official Document 12501/BTC - CST dated September 20, 2010 issued by the Ministry of Finance.
According to Le Hoang Anh, Managing Director of Dragon Capital, in the event that shares are transferred in a publicly traded company, foreign individual/institutional investors and individual investors are levied 0.1 percent tax on the transfer value while domestic institutional investors are imposed 25 percent tax on returns. But, when the shares are transferred in a non-publicly traded company, institutional investors (Vietnamese or foreign) are subjected to 25 percent corporate income tax while Vietnamese individual investors are taxed 20 percent on returns and foreign individual investors are subjected to a tax of 0.1 percent on transfer value. This discourages institutional and individual investors from investing in private equity (non-publicly traded companies) because they pay different taxes for the same activity of capital transfer. As most of non-publicly traded companies are small and medium-sized enterprises (SMEs), this regulation brings them more difficulties in operation.
0.1 percent on sale value or 25 percent on returns?
At present, the Ministry of Finance is drafting a circular providing instructions on all types of taxes on investment securities. It is considering appropriate tax incentives for securities investment funds and open-ended funds will be applied first to support professional institutional investors. So, according to representatives of investment funds, Vietnam should have a tax that expresses appropriate treatment to risks investors and investment funds face when they invest in different types of companies; discrimination is inappropriate.
To enhance transparency of securities activities and boost liquidity on the stock market, many delegates proposed tax policies to attract long-term capital flows from foreign investors and unify foreign investors’ understanding of Vietnamese tax policies. It is also necessary to have a separate tax mechanism for this group of investors.
According to Mr Le Hoang Anh, Vietnam needs to apply a 0.1 percent tax on capital transfer in both publicly traded companies and private companies. Or the Ministry of Finance allows investors to choose either of the two options: 25 percent on returns or 0.1 percent on sale value. Many also suggested applying 0.05 percent tax on transfer value.
Mr Pham Dinh Thi, Deputy Director of Tax Policy Department under the Ministry of Finance, said the circular specifying all types of taxes on securities investment activities is being drafted by the Ministry of Finance. Policymakers are weighing up preferences for specific sectors to branch out securities investment. “It is necessary to restructure securities business organisations, including securities companies, securities investment fund management companies and hedging services. However, tax policy helps boost the health and transparency of the market rather than change it,” Mr Thi said.
Hoang Anh
Vietnamese
