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Investors insisting on PIT collection delay
While state management agencies have been insisting on collecting personal income tax (PIT) from securities investments as of January 1, 2009, the business circle has warned that the tax collection would discourage investors and hinder the development of the fledgling stock market.
Investors will give up market?
Late last week, Thang Long Securities Company (TLS) released a 12-page report on possible impacts of PIT collection on the stock market. The report was prepared by Dr Nguyen Trong Nghia, Investment Consultancy Director of TLS, who was formerly an expert at the Centre for the Analysis of Investment Risk (CAIR) and financial advisor to ADB, WB and Bank of England projects.
Nghia wrote that the majority of countries all had a long period of tax exemption before imposing PIT on securities investors in order to encourage market development. The US stock market, for example, was born in 1897, but taxes were not collected from it till 16 years later.
China’s stock market was born 10 years earlier than Vietnam’s market. Meanwhile, the country has only considered taxing securities investors recently, but has delayed the taxation to support the market, which has also been falling sharply since the beginning of the year.
Nghia said that the government should not collect PIT until the stock market develops well, when the market capitalisation value reaches some 50% of GDP. As the market has been falling continuously, taxing the small incomes of investors would discourage investors and prompt them to leave the market.
“The departure of investors is surely not the thing the market founders want, because this will affect new investors who plan to join the market,” Nghia said.
The Vietnam Association of Finance Investors (VAF) on November 28 also released a report which put forth possible negative impacts of the PIT collection on Vietnam’s stock market.
Delaying PIT collection is what investors want
The stock market late last week witnessed a trading session with unexpected price increases. The price increases have been attributed to two occurrences: 1/the market has been falling too sharply 2/ there was good news from the regular meeting of the government on November 27. At the meeting, government members suggested delaying the time for implementing the PIT Law to July 1, 2009 instead of January 1, 2009.
It has been asked for how long the PIT collection should be delayed, and the answer that has been given is ‘until the market recovers and develops'. Some experts say that in the context of the economic recession, taxation should not be imposed until 2010.
Dinh Van Nha, Deputy Chairman of the National Assembly’s Finance and Budget Committee, said that he personally advocates delaying the collection of PIT.
Nhat said that a PIT collection delay would help stimulate investments, which proves to be very necessary for the development of the market.
“The deference of tax collection should last one year, since it will take a long time to stimulate investments. Six months would not be enough. The financial crisis will affect the world’s economy not only in 2009, but may last until 2010,” Nha said.
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