Tax on bank savings could mean mass withdrawals

There is the strong possibility money earned from bank deposit interest will be taxable according to the draft Law on Personal Income Tax. While this is nothing odd in most countries, in Vietnam where it was a long road to instil peoples’ faith in the banking system by getting them to take their hard-earned cash from under the mattress and deposit in banks.
According to the draft Law on Personal Income Tax that has been released lately by the finance ministry, all earnings from savings deposited at banks will likely be a taxable income. It is expected that saving-based earnings of between four and five million dong per month or equivalent to 700–800 million dong or more of saving deposits will be subject to an income tax rate of 5%.
No sooner had this news been released in media when banks expressed their concern and wished to have more official information from the law compilation board to try to ascertain the future impact it might have.
Tran Hai Anh, general director of Phuong Nam Joint Stock Bank or Southern Bank said on September 7: “We are very concerned about this possibility. We do not know that from now to 2009 when the law comes in force, there is any change to it. I think many people may not be interested in depositing savings at banks any longer. Instead, they will switch to other more profitable investment channels such as gold or securities.”
“Or the simplest way to circumvent the tax liability would be to divide their deposits into smaller amounts at various banks. Or they could easily use the name of a relative for the savings accounts at banks,” said Hai Anh admitting that using someone else’s name carries the obvious risk when its time to have the money returned.
Moreover, large savings amounts receive higher interest rates than small amounts. This means depositors would lose from the tax policy.
As an example, at Southern Bank, the number of depositors with 700 million dong or more (which is likely to be subject to a tax rate of 5%) now accounts for about 50–60% of total depositors. Therefore, if the law taxes the saving-based earnings, this will have very big impacts on the bank.
At Vietnam Export and Import Joint Stock Bank (Eximbank), this rate is now over 50% of total depositors.
Nguyen Gia Dinh, general director of Eximbank said the if the law comes in force, it will cause a very big impact on his bank in particular and the whole banking system in general.

 

Category: Finance