Rigid tax regime stunts stock market development
Vietnam Association of Financial Investors (VAFI) and the National Association of Securities Dealers to organise a meeting on October 21, to discuss conditional tax incentives applied to listed firms on the stock market.
According to the assessment by VAFI, at present the scope and the performance of the Vietnamese stock market is very small and weak with limited paper to trade. To date, 1,700 SOEs have been equitised to operate under the form of shareholding company or joint stock company, of which up to 200 equitised SOEs all meet all the minimum listing requirements and about 2,000 SOEs commit to complete the government guideline on equitisation in 2005, which are considered the potential ‘goods’ for the performance of the stock market.
However, equitised SOEs that can meet all the listing regulations are not interested in joining the stock market. One of the major causes leading to the disinterest of equitised SOEs is the unrealistic preferential tax policies of the government to make up for foreseeable disadvantages once they join the stock market.
Decision 39/2000/QD-TTg dated July 23, 2000 of the prime minister temporarily regulated on the preferential tax policies applied to the stock market. Accordingly, listed companies are entitled to a reduction of 50% of corporate income tax that must be paid in two years after they have list their shares for the first time on the stock market. However, in fact, the above tax incentive level is not attractive enough in equitised SOEs’ eyes, which makes the stock market, even though coming in operation since 2000, still underdeveloped.
A listed company director said that although listed businesses are entitled to the preferential CIT policy for two years, they still have to suffer from many pressures due to seriously conforming to the prevailing regulations on the stock market. The policy on financial transparency will cause disadvantages in severe and fierce competitions to listed companies once their competitors know much their secrete information whereas listed companies do not have conditions to know about their competitors’ information.
In addition, listed businesses also suffer from many tasks, expenditures and disadvantages compared with the time before listing on bourse. It is noteworthy that advantages of the listing brought back to them is not much.
Ly Tai Luan, chairman of VAFI said that because preferential tax policies for listed companies is not much in comparison with disadvantages suffered by them to join the stock market, most equitised businesses are not interested in this capital market even though up to 200 equitised SOEs can meet all the listing regulations.
Under Decision 163/2003/QD-TTg dated August 8, 2003 of the prime minister on approving the Vietnam stock market development strategy to 2010, total earnings from the stock market by 2005 are expected to reach only 2-3% of GDP and by 2010 reach 10-15% of GDP.
However, to date, the stock market is still undeveloped and has the too small operational scope. Total stock market value is estimated to reach 0.4% of GDP. To reach the 2005 target of 2-3% of GDP, the operational scope of the stock market must be increased to five times. Total par value of listed shares is just 1.2 trillion dong and market capitalisation is just over three trillion dong—some 257 times smaller than the Indonesian stock market, which is the second smallest stock market in the Asean region.
At present, the number of listed companies in the Vietnam stock market is only equal to one fifteenth of Thailand’s, one fortieth of Malaysia’s, and one fiftieth of China’s.
The daily share transaction value of listed companies in Vietnam is averaged at US$0.03 a session. It means this value is only equal to one sixth of Malaysia , one fiftieth of Thailand and China.
Financers said that to reach the minimum value level of the Asean countries (accounting for 30% of GDP), the operational scope of the Vietnam stock market must be increased to 100 times.
According to Luan, in the current context of the economy, a reasonable preferential tax policy is a best measure to encourage equitised SOEs to join the stock market and boost the development of the stock market.
