Proposal to tax interest earned on savings deposits.
The People's Committee of Can Tho City has proposed extending personal income tax to interest earned on savings, suggesting that only small-scale deposits should be exempted.
The Ministry of Finance has compiled feedback from ministries, sectors, and localities on the draft Law on Personal Income Tax (replacement). In its comments on the draft submission, the People's Committee of Can Tho City suggested that the drafting unit should research and expand the tax base. Accordingly, the locality proposed that only small-scale interest income from deposits should be exempt from personal income tax, while large-scale interest income should be subject to tax.
Conversely, Ninh Thuan province proposed maintaining the tax exemption policy on interest rates from savings deposits, government bonds, and long-term investments. According to the province, maintaining these tax incentives would encourage people to deposit money in banks, ensuring capital flow for the economy and creating momentum for development.
The idea of taxing interest earned on savings deposits is not new. (Illustrative image.)
In response to the above proposals, the Ministry of Finance stated that the State budget is oriented towards restructuring to ensure a safe and sustainable national financial system, including expanding the tax base and minimizing the integration of social policies into tax laws. Along with this, tax exemption, reduction, and deferral policies are ensured to be neutral. This is implemented in accordance with Resolution 07/2016 of the Politburo.
In the draft, the Ministry of Finance also stated that taxing income from interest on deposits is not uncommon worldwide. Thailand taxes interest on bank deposits, China also levies tax on interest income, while South Korea considers interest as taxable income. However, many countries allow deductions for mortgage interest, considering it a special deduction when calculating personal income tax, in order to encourage people to own homes.
"The amendment and supplementation of tax and fee laws should follow market principles, be consistent with international practices, and be linked to restructuring revenue sources and expanding the tax base...", the Ministry of Finance stated.
According to the Ministry of Finance, revising the criteria for tax exemptions and reductions needs to be studied to align with the policies, practices, and trends of tax reform worldwide.
In fact, the idea of taxing interest earned on savings deposits is not new. Similar proposals were made in 2013 and 2017. At that time, opinions suggested that if the interest earned amounted to hundreds of millions or billions of dong per year, it should be considered an investment like stocks or real estate, and therefore should not be tax-exempt.
However, many experts fear that taxing interest on savings deposits will make banks' capital mobilization sources vulnerable, pushing the entire system into a race for deposit interest rates, which in turn puts pressure on businesses as lending interest rates will be forced to increase. Domestic businesses, already facing difficulties, will face even greater challenges.
Moreover, if depositing money in banks is taxed, people will choose alternative solutions, and money will flow into USD, gold, and other investment channels such as cryptocurrencies, real estate, and stocks…
Individuals receiving interest income from deposits at credit institutions and branches of foreign banks are exempt from tax. This includes deposits in the form of fixed or non-term deposits, savings accounts, certificates of deposit, promissory notes, treasury bills, and other deposits subject to full repayment of principal and interest.
According to current regulations, only income from interest on company deposits is subject to corporate income tax.
