MOF attempts to tax deposit interests The Ministry of Finance (MOF) is considering taxing the profits businesses make from depositing their money at banks or lending to others.   Vietnamese enterprises, which have been on tenterhooks because of the high inventories and risky investment expansion plans, have been dazed by the news that they would have to pay tax on the earnings from bank deposits. This means that they would be taxed twice on the same income – the corporate income tax of 25 percent, and the tax on the earnings from lending. MOF explained that the taxation would encourage enterprises to use their money for the production and business projects instead of depositing money at banks to get the interests. Van Duc Muoi, General Director of Vissan, said in the current conditions, enterprises don’t have so much money to deposit all at banks for interests. They just make short term deposits while seeking new investment opportunities, or because their projects still cannot be implemented. “No enterprise wants to use their money this way. They will not deposit at banks if they have business opportunities,” Muoi said, adding that MOF attempts to force enterprises to throw money into projects, though it’s unclear if the projects are feasible. The manager of a petroleum company in the south has warned that the MOF’s taxation idea may not be implemented in reality. In other words, it would not be able to collect tax from businesses’ earnings from lending. “What methods will MOF use to control the loans, if enterprises do not expose the information about the lending, while banks follow the principle of keeping clients’ information secret?” he questioned. Nguyen Thanh Hong, Deputy Director of an export company in Hanoi, described the MOF’s officers, who compile the legal document as the “clerks who draw elephants in the air conditioned room”, i.e. the ones who just stay on their seats and therefore, cannot understand the enterprises’ situation. Hong has also pointed out that the draft document only says businesses’ interests would be taxed, while it does not clearly stipulates if the regulation would be applied only to state owned enterprises only, or to all enterprises. However, the opinions from well informed circle said MOF has its every reason to attempt to tax on enterprises’ deposit interests. An official of the General Department of Taxation said the legal document targets the “big guys” – the state owned enterprises which have money in large quantities and regularly deposit money at banks for profits. The finance reports of many big enterprises showed that some of them deposited tens of trillions of dong at banks in recent years, while the profits were up trillions of dong. This allowed the enterprises to easily make money by depositing money instead of struggling to do business in the market. Chair of the Vietnam Small and Medium Enterprises’ Association Dr. Cao Sy Kiem said there are many ways for the state management agencies to drive the cash flow to the production and business, rather than taxing the deposit interests, though the method has been applied in some countries in some certain conditions. For example, in order to encourage businesses to pour money into investment projects, the deposit interest rates applied to institutions should be lowered, to 1 percent, for example. If so, businesses would have to work hard to try to make money instead of “expecting everything to drop into their laps”. Source: Tien Phong