A client makes deposits at a bank in Ho Chi Minh City
Several economists have voiced opposition to a proposal by the Ho Chi Minh City Real Estate Association (HoREA) to have the government tax interest payments made on bank deposits, arguing that such a move would be unfair, unreasonable, and infeasible.
HoREA submitted the proposal to the prime minister late last month, asking that interest payments made on deposits of VND500 million ($23,800) upwards be taxed in order to drive capital flows into production and business, helping the property market and other sectors recover from the current economic slump.
Le Hoang Chau, chairman of HoREA, said other countries do not encourage people to make deposits. He said other governments encourage citizens to establish business and produce in order to create income.
Interest rates in other countries are often lower than inflation, while interest rates are higher than inflation in Vietnam, so local residents often make deposits to earn money, he said.
If Vietnam does not take measures to drive capital flows into production and business, economic development will continue facing difficulties, he argued.
Cao Sy Kiem, former governor of the State Bank of Vietnam, said: “This is an unreasonable proposal that [badly] affects local residents’ interests.”
They are already taxed on the money they earn, he said, adding that the proposal would have them taxed again on that same money once they deposit it.
Imposing the tax would also reduce deposits and banks may then face a capital shortage, he said.
As well, local residents who make deposits are not the same people who invest in production and business, he said.
“I don’t think it [the proposal] can help encourage local people to put their money into production and business to earn profits.”
Economist Le Dang Doanh said the implementation of the proposal would cause more difficulties for business, not less.
He said deposits were an important source of capital for commercial banks and more than 80 percent of Vietnamese companies’ total capital is on loan from banks.
Thus, taking capital away from the banks is taking capital away from the businesses the measure aims to help, he argued.
Moreover, the proposal is infeasible, as local residents can divide their funds into smaller deposits to avoid the tax, Doanh said.
He also argued that if deposits become less attractive, local residents will likely use their money to trade US dollars and gold, not invest in property sector as the association expects.
The property market is frozen not because local residents put their money into deposits, but because real estate prices are unreasonable, and the products available do not meet market demands, Doanh said.
Echoing Doanh, Tran Hoang Ngan, a member of the National Financial and Monetary Policy Advisory Council, said Vietnam should still encourage it’s people to save money via bank deposits as those funds will then be a source of loans for the production sector.
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By Bao Van, Thanh Nien News (The story can be found in the March 8th issue of our print edition, Vietweek)