Proposal to tax savings interest is heating up again

Recently, Can Tho City continued to propose to impose personal income tax on interest on large-scale savings deposits. What is the Ministry of Finance's opinion?

The idea of taxing interest on savings deposits is not the first time it has appeared. Photo: Hai Nguyen.

Proposal to tax savings interest: Old story "heats up" again

The issue of taxing income from interest on savings deposits arose once again when the People's Committee of Can Tho City commented on the draft proposal to build the Law on Personal Income Tax (replacement) chaired by the Ministry of Finance. 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.

It is worth noting that 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 exempt from tax.

Contradictory views

Can Tho City proposed expanding personal income tax to interest on savings deposits, exempting only small-scale savings. Meanwhile, Ninh Thuan Province proposed continuing to exempt interest on deposits, government bonds and long-term investments to encourage savings and support economic development.

Currently, individuals earning interest from deposits at credit institutions and foreign banks are exempt from tax. These include term deposits, non-term deposits, certificates of deposit, promissory notes, treasury bills, etc. Meanwhile, according to current regulations, only enterprises earning interest from deposits are required to pay corporate income tax.

In its comments on the draft revised Law on Personal Income Tax, the People's Committee of Can Tho City said that it is necessary to study and expand the tax base to ensure budget revenue. Accordingly, only small-scale deposit interest should be exempted from tax, while large-value amounts should be taxed as income.

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 Ministry of Finance said that the current direction of adjusting tax policies is to ensure sustainable revenue sources and minimize the integration of social policies into taxes. However, this agency has not yet given a specific plan on whether to tax deposit interest or not.

Taxing interest income is not uncommon in the world. Thailand taxes interest on bank deposits, China also taxes interest income, while South Korea considers interest income taxable. However, many countries allow home loan interest deductions as a special deduction when calculating personal income tax, in order to encourage people to own houses.

What does the Ministry of Finance say in the latest draft?

In this revised draft, the Ministry of Finance plans to add some deductions, such as home loan interest, to ensure fairness. However, whether or not to officially tax savings interest remains open, as the drafting agency has not included this content in the latest draft.

Instead, the Ministry of Finance focuses on expanding the tax base by adding other income sources, such as from the transfer or liquidation of special assets such as phone SIM cards and internet domain names.

Tax policy always requires careful assessment of its social and economic impacts. Although expanding the tax base is considered a trend to increase revenue, the policy of taxing interest on savings deposits is still controversial, because if not thoroughly considered, it can directly affect people's savings habits and capital flows in the banking system. Finding a common voice between fiscal goals and financial market stability, therefore, remains a challenging problem.

Source