25% tax on securities earnings not too high

The Deputy Minister of Finance, who drafted the bill on personal income tax, Truong Chi Trung, explained why the tax rate on securities earnings should be 25%.

Some experts said that the suggested 25% tax rate on capital assignment proves to be too high. What is the basis for the compilation committee’s decision that the tax rate should be 25%?

When designing the tariff, we planned to set the same tax rate on the capital assignment and real estate assignment at 25%, to make the tariff transparent and simple. The basis for the decision is the currently applied tax rate of 28% imposed on the earnings from securities investments of institutions and enterprises (individual securities investors now enjoy tax exemption).

The compilation committee thinks that there should not be a too big gap between the tax rates on individuals and institutions, which would prompt tax evasion. In other countries in the region, the tax sums securities investors have to pay may be ½, ¼ or 1/5 of the income from capital assignment. We have considered these cases thoroughly, and decided that the 25% rate would be a suitable rate, not overly high if compared to other countries.


VAFI (Vietnam Association of Financial Investors) has proposed lower tax rates, 5%-10%. What would you say about the suggestion?

As for the income tax, it is impossible to design different tax rates for different investors. We can only impose different tax rates on residential and non-residential investors. As I have said, the too big gap between the rates on individual and institutional investors will encourage institutional investors to evade tax by assuming individuals’ names. This is a taboo in designing tax policies.


In fact, individual investors cannot get big profit as institutional investors can, because individuals do not have much experience in doing business. Do you think that it would be unreasonable to impose the same tax rates on individuals and other subjects?

As for individual investors, tax policies always aim to encourage investment. The tax designed for these investors has never been too high to keep them away from the market.

In the last few years, the state, aiming to stimulate the market, has been applying policies of tax exemption for many subjects. In fact, the collection from securities earnings has just accounted for a small proportion of the state budget collection. However, as the market develops, it would be necessary to amend the policies to make them more suitable to the new circumstances. Besides domestic investors, foreign investors have also joined the market, and it would be unfair to collect tax from foreign investors while leaving domestic investors exempt from tax.

In fact, if deducting 0.1% of transaction value for every transaction, this sum proves to be even lower than the brokerage fee investors have to pay to securities companies, now 0.5% at maximum. Foreign professional investors are still heavily investing in Vietnam, which shows that the current tax policies are suitable.

The principle of tax calculation is imposing on income (the margin after deducting the prime cost and additional expenses from the turnover). How can we calculate the additional expenses?

Investors must show vouchers, for example, the consultancy contracts, the contracts on borrowing money for investment deals. State management authorities will promulgate documents guiding the issue after the law is enacted


Could you please tell us more about the tax collection method?

When investors transfer their shares, securities companies will automatically withhold 0.1% of the total value of the assigned shares. At the year’s end, the earners have to go to taxation agencies to declare the total income and the total tax they have to pay. If the tax sums they have to pay are higher than the sums they temporarily paid, they will have to pay additional sums. Meanwhile, if the tax sums they have to pay are lower than the temporarily paid sums, they will get the tax refund. The method is now being applied for collecting tax from foreign investors.


As for the OTC market, where transactions cannot be controlled well, VAFI has suggested that the taxation bodies will collect 0.2% of the share face value. What would you say about the proposal?

In designing tax policies, there should not be the overly big difference between the policies applied to different subjects. In principle, the tax on OTC securities will be similar with the listing securities. At this moment, it seems to be difficult to collect tax from OTC securities investors. However, the situation will be different in two or three years. The OTC market will also have a watchdog, while public companies will have to register their business, and OTC share transactions will have to go via securities companies.


How will you deal with the opinions and suggestions from experts and the public on the personal income tax bill?

The compilation committee is collecting opinions from the public. On August 15, the opinions will be classified into groups for discussion.

Source: VNE