The People’s Committee of Can Tho recently submitted its recommendations on the draft proposal to amend the Personal Income Tax (PIT) Law, suggesting that interest income from savings deposits be subject to taxation.

Currently, under Vietnamese tax regulations, individuals earning interest from various types of deposits - including term and non-term savings, certificates of deposit, treasury bills, and other interest-bearing financial instruments - are exempt from PIT. Only corporate entities are required to pay corporate income tax on interest income.

International tax practices on savings interest

The Ministry of Finance’s draft law cites examples from other countries where interest income is subject to personal income tax.

Thailand: Personal income tax covers eight categories of income, including interest earned from bank deposits and dividends.

China: The country’s PIT law includes nine taxable income categories, among them interest, dividends, and profit distributions.

South Korea: Interest is classified as taxable personal income.

Many countries have broad tax policies that encompass irregular or supplementary income sources, such as royalties and franchise earnings.

According to the Ministry of Finance, as Vietnam's economy evolves and new income streams emerge, tax regulations must be adapted to reflect these changes. The ministry argues that Vietnam should consider revising its tax code to capture a wider range of taxable income, ensuring fairness among individuals with different sources of revenue.

“The current scope of taxable income under Vietnam’s PIT law aligns with international standards and past economic conditions. However, as personal income sources become more diverse, tax regulations should be expanded to cover additional income types. This would ensure tax fairness and compliance with international tax principles,” the Ministry of Finance stated.

A long-standing debate on taxing interest income

Discussions about taxing interest on large savings deposits are not new. Proponents argue that high-interest earnings resemble investment returns from stocks or real estate, which are already taxed.

However, strong opposition has persisted, with many arguing that bank deposit interest should remain tax-free to encourage saving and economic stability. Critics believe that taxing savings interest could reduce incentives for individuals to keep their money in banks, potentially impacting economic growth and financial security.

Current taxable income categories in Vietnam

According to Article 3 of Vietnam’s Personal Income Tax Law, the following ten types of income are currently subject to PIT:

Business income

Wages and salaries

Investment income

Capital transfer income

Real estate transfer income

Lottery winnings

Royalties

Franchise income

Inheritance income

Gift income

The ongoing debate will determine whether interest income should be added to this list in future tax reforms.

Binh Minh