Proposal to tax savings interest
Can Tho City People's Committee proposed expanding personal income tax on savings interest, only exempting small-scale deposits.
The Ministry of Finance has just compiled the opinions of ministries, branches, localities... contributing to the draft Law on Personal Income Tax (replacement). Commenting on the draft submission, the People's Committee of Can Tho City said that the drafting unit should study and expand the tax base. Accordingly, this locality proposed that only small-scale deposit interest should be exempted from personal income tax, while large deposit interest should be subject to tax.
In contrast, Ninh Thuan province proposed to maintain the tax exemption policy on interest rates on savings deposits, government bonds and long-term investments. According to the province, maintaining tax incentives will help encourage people to deposit money in banks, ensure capital flow for the economy and create development momentum.
The idea of taxing interest on savings deposits is not the first time it has appeared. Illustration photo.
Responding to the above proposals, the Ministry of Finance said 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 taxes. Along with that, the tax exemption, reduction and deferral policies ensure neutrality. This is implemented according to Resolution 07/2016 of the Politburo.
In the draft, the Ministry of Finance also said that taxing income from interest on deposits is not uncommon in the world. Thailand taxes interest on bank deposits, China also taxes income from interest, while South Korea considers interest as taxable income. However, many countries allow deductions for home loan interest, considering it a special deduction when calculating personal income tax, in order to encourage people to own houses.
"Amending and supplementing laws on taxes and fees according to market principles, in line with international practices, associated with restructuring revenue sources, expanding the tax base...", the Ministry of Finance stated.
According to the Ministry of Finance, the amendment of exemption and reduction objects needs to be studied to be consistent with policies, practices and tax reform trends in the world.
In fact, the idea of taxing interest on savings deposits is not the first time it has appeared. Previously, in 2013 and 2017, there were a number of similar proposals. At that time, opinions were that if the interest amounted to hundreds of millions or billions per year, it should be considered an investment channel like stocks or real estate, and therefore should not be exempted from tax.
However, many experts are concerned that taxing interest on savings deposits will make banks' capital sources vulnerable, pushing the entire system into a race for deposit interest rates, which in turn puts pressure on businesses as lending rates are forced to increase accordingly. Domestic businesses, which are already facing difficulties, will face even more difficulties.
Not to mention, if depositing money in banks is taxed, people will choose other alternative solutions, money will flow into USD, gold and other investment channels such as virtual currency, real estate, stocks...
Individuals who have interest on deposits received from credit institutions and foreign bank branches are exempt from tax. These are deposits in the form of term deposits or term deposits, savings deposits, deposit certificates, promissory notes, treasury bills and other amounts subject to the principle of full repayment of principal and interest.
According to current regulations, only income from interest on deposits of companies and enterprises is subject to corporate income tax.
