Taxes are too high and difficult to enforce

In the draft Law on Personal Income Tax (replacement) being put out for comments, the Ministry of Finance proposes that resident individuals transferring securities will be subject to a tax rate of 20% on taxable income. Taxable income for transfer is determined by the selling price minus the purchase price and reasonable expenses related to generating income from securities transfer in the annual tax period.

In case the purchase price and costs related to the transfer of securities cannot be determined, personal income tax is calculated at 0.1% of the selling price for each transfer.

Previously, the Personal Income Tax Law 2007 (effective from 2009) provided for two tax collection methods for securities transfers: 20% on annual income or 0.1% on each sale price and no tax settlement required at the end of the tax year.

Law No. 71/2014/QH13 (effective from 2015) stipulates a unified method of calculating personal income tax on securities transfers at a tax rate of 0.1% on the transfer price each time.

Talking to VietNamNet reporters about this new proposal, the director of research at a securities company said that the 20% interest rate is too high and if implemented, it will have a strong impact on the market. The stock market is mostly small investors, holding for the short term, with few buyers holding for the long term.

Meanwhile, Vietnam’s stock market does not compare with developed markets. Many frontier markets like Vietnam are even tax-free.

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The proposed 20% tax rate on securities transfer profits is considered too high and inappropriate. Photo: HH

Sharing the same view, Mr. Phan Van Nhan, a securities expert from SSI Securities Company, also said that the proposed tax rate of 20% on securities transfer profits is too high and unfeasible, both for long-term investors and short-term investors (T+). If applied, many investors may leave the market.

Mr. Nhan gave an example of DIG stock. In 2021, this stock increased from 20,000 VND/share to 100,000 VND/share, and by 2022 it had dropped sharply to 10,000 VND/share.

In case a long-term investor buys at VND20,000/share and holds until the price reaches VND100,000 before selling, according to the current tax rate (0.1% of the transaction value), the tax payable is VND100/share. However, if the new proposal is applied, the tax will be 20% on the profit (VND100,000 - VND20,000 = VND80,000), equivalent to VND16,000/share - 160 times higher than the old rate.

In another case, a swing trader sells at VND100,000/share (profit of VND80,000), pays VND16,000 in tax, then buys back the shares at the same price of VND100,000. However, the share price then drops to VND20,000/share, causing the investor to lose VND80,000. Thus, even though the total profit - loss is 0, the investor still loses VND16,000 in tax paid previously. With an initial investment of only VND20,000, this tax causes significant damage.

Even if an investor holds the stock for two years, the price increases from 20,000 VND/share to 100,000 VND and then drops back to 20,000 VND without selling in the middle, he will break even and not have to pay tax.

Thus, just one action of selling at 100,000 VND and then buying back at 100,000 VND/share, the investor lost 16,000 VND, or 80% of the initial capital of 20,000 VND.

This could mean less trading, less liquidity and a market that has been sluggish for much of the time, becoming even less attractive to investors.

Stocks in Vietnam fluctuate strongly, investors suffer losses

Mr. Phan Van Nhan also noted that Vietnamese stocks fluctuate very strongly, rising quickly and then falling quickly. In some countries, such as the US, large stocks increase over time, sometimes for a decade, along with the development of businesses.

Thus, in the year when the stock price goes up, the state collects 20% of the profit, but in the year when the stock price goes down, investors will suffer a great loss. For example, DIG stock, from 2021 until now, has been moving sideways, as of the end of the trading session on July 22, it was still at VND 20,500/share, equivalent to the level at the beginning of 2021, even though there was a time when it went up to VND 100,000/share.

Stocks in Vietnam are volatile, the market is mostly quiet and unattractive to investors, and high taxes will create more difficulties.

According to this expert, American companies are global, with growth of several decades. The growth cycle is several decades, and if the stock price increases steadily over the long term, it is reasonable to impose a tax on stock interest. Vietnamese companies are small in scale, with a short growth cycle, a few years at most. Sometimes, after only a few quarters, the business will run out of growth momentum.

Therefore, Mr. Nhan believes that the 0.1% tax rate on the value of each transaction should still be maintained, which will stimulate investors to participate in the market.

In some countries, most types of capital gains and securities are also subject to tax, but the way and method of tax collection varies greatly from country to country. Some countries collect taxes based on a percentage of the transfer price, some countries collect taxes based on the income from the transfer, and some countries apply different tax policies between listed and unlisted securities.

For example, Indonesia is applying a 0.1% withholding tax on revenue from the transfer of shares listed on the stock exchange.

In the Philippines, personal income tax on the transfer of listed securities is 0.6% of the transaction value; proceeds from the sale of unlisted securities are taxed at 15%.

In Japan, income from the sale of certain securities is taxed separately from other sources of income, at a fixed rate of more than 20%.

The Ministry of Finance proposes to impose a 20% tax on securities transfer profits of individuals . For securities transfers of resident individuals, the Ministry of Finance proposes to determine by multiplying taxable income by the tax rate of 20%, in the annual tax period.

Source: https://vietnamnet.vn/ap-thue-20-tren-lai-chung-khoan-qua-cao-lo-nha-dau-tu-roi-bo-thi-truong-2424764.html