Factors affecting personal income tax on personal finance and investment
The Law on Personal Income Tax is amended in the direction of expanding the scope of taxation, increasing the family deduction level and adding tax rates for some new types of business. This may increase tax costs for some types of businesses that are attracting. However, it will create fairness in business operations, which can negatively affect personal finances.
Reducing the number of tax rates and raising the highest taxable income may benefit people with average or good incomes and reduce the tax burden for people with low incomes, reduce personal tax costs will stimulate spending and investment. This will stimulate spending and increase investment readiness. If idle money increases while there is no financial pressure, the investment trend in long-term assets will increase.
Speaking with Lao Dong, Mr. Nguyen The Minh - Director of Personal Customer Analysis at Yuanta Securities Vietnam - assessed that according to the current calculation, the tax rate for salary earners will be the highest tax rate. Not to mention that not applying progressive tax to the business and financial investment group also does not create fairness for employees to receive salaries.
The group of salary workers is subject to a tax rate of 5-35% according to progress. Meanwhile, the individual business group only calculates a tax rate of 0.5-2% on revenue and has incentives for small businesses, while the financial investment group only has a tax rate of 0.1-5% on non-advanced transactions.
In addition, the growth rate of salary earners is often low or equal to the annual inflation rate. Meanwhile, personal business or financial investment often bring higher performance than the growth rate of the salary group.
"Tax policies have a direct impact on the decisions of individual investors. If the tax rate changes, cash flow will tend to shift from investment channels with high tax rates to investment channels with low tax rates and high profit rates.
Currently, opinions assess that personal income tax can be applied to depositors. If this is applied, it is likely that cash flow will shift to investment channels such as securities, real estate, etc., often bringing higher profits than savings channels.
However, Vietnam currently does not have preferential tax policies for long-term holding, so individual investors still prioritize short-term strategies and cause strong fluctuations in the stock market" - Mr. Nguyen The Minh assessed.
International experience in tax reduction and exemption
Mr. Nguyen The Minh said that in the experience of developing countries, tax reduction or tax exemption for holding assets (securities: stocks or bonds) for more than 1-2 years or investing in pension funds or investment funds. At the same time, exempt dividend tax for investors to encourage investors to prioritize long-term holding.
"I think that to balance the budget and encourage personal investment, we should increase the tax rate for investments under 1 year and reduce the tax rate for long-term investments over 1 year.
This still encourages people to participate in investment but will prioritize long-term investment. Thereby solving the short-term speculation that causes strong fluctuations in assets that the psychology of Vietnamese individual investors often encounters. At the same time, carefully assess the tax increase because the tax increase is too high, which can cause tax evasion or sudden withdrawal from the financial market" - Mr. Nguyen The Minh said.
According to this expert, currently the US, UK and Japan are the countries that offer preferential tax rates for investors holding for 1-2 years and exempt taxes for investors when investing in fund models. At the same time, in Hong Kong (China), Singapore and France increased the tax rate for short-term investment activities and high-speed transactions.
Mr. Nguyen The Minh expects the change in personal income tax as analyzed above to create fairness among taxable groups, balance budget collection and investment incentives, increase stability for the financial market, which is the biggest disadvantage of the Vietnamese financial market.
"The Vietnamese government has a COP26 commitment to reduce emissions and increase sustainability for the economy, so funding sources must also be long-term and stable. The government needs to set the lowest preferential tax rates compared to other types of financial investment to encourage people to participate in investing in green investment funds or green bonds in the future" - Mr. Nguyen The Minh informed.
