First full tax regime for securities

In a draft circular, the finance ministry has proposed different rates of value added tax (VAT) and corporate income tax (CIT) for stock market investors, securities companies, investment funds and organisations that trade in securities.
Securities companies will pay a CIT rate of 20 per cent, compared to the 28 per cent paid by companies in all the other sectors of the economy.
Foreign investment funds that invest in unlisted or listed companies will be taxed 0.1 per cent of the value of each of their transactions.
All other companies, whether listed or unlisted and including entities that have invested in the stock market, will be subject to CIT of 28 per cent.
All businesses involved in the sector will be exempt from VAT, from brokers to foreign investment funds.
The draft circular also stipulates that new securities companies and fund management companies will be exempt from CIT for the first three years, and will pay a reduced rate of CIT for the following five years.
“The taxes are a way of encouraging the development of the country’s securities market, which is still in its infancy,” said Nguyen Duc Chi, director of the capital markets division of the ministry’s Banking and Financial Institutions Department.
“The wording of the circular makes it difficult for institutional investors to commit fraud by representing themselves as individuals so they do not have to pay tax.”
Furthermore, Chi said money transfers via bank were strictly monitored, again making it difficult for investors to get away with fraud.
Tran Le Minh, senior analyst at VietFund Management, said this was the first time a tax regime had been proposed for the securities sector, despite the country’s first bourse having opened in Ho Chi Minh City in 2000.
Phan Minh Tuan, chief representative of Dragon Capital Hanoi, said the expansion of preferential policies and measures to encourage enterprises to list on the stock exchange was necessary given that the market was still weak.
Nguyen Son, deputy head of the Securities Market Development Department under the State Securities Commission, said the tax levels were “acceptable”.
If they were any higher, they would be a significant burden for investors, Son said.
Nguyen Hoang Hai, the general secretary of the Vietnam Association of Financial Investors, agreed a “soft” tax level was needed in the early stages of the market’s development.
“The amount of taxes collected from securities trading activities will be low, as many investors have suffered losses, including individual investors who are exempt from the personal income tax.”
Close to 17,000 accounts for securities trading have been opened in Vietnam, a small number by world standards.
“It is essential that the government apply a suitable tax rate that is attractive enough to investors, including foreign ones,” Hai said.
But he warned that increasing the flow of capital to the stock market could reduce investment in real estate, which would harm economic growth.
“However, on the other hand, once companies are more able to mobilise capital from the securities market, the capital supply burden on commercial banks will be reduced.”