If personal income tax (PIT) is applied to savings interest, deposits may leave banks, as savings funds are typically the remainder after taxes have already been paid.

In recent feedback on the draft proposal for the revised Personal Income Tax Law, the People’s Committee of Can Tho City suggested expanding PIT to include savings interest, with exemptions only for small deposits.

Under current regulations, interest earned on savings deposits is subject to corporate income tax when the depositor is a business entity, but individual depositors are exempt from taxation.

Experts oppose taxing savings interest

Commenting on this proposal, financial expert Associate Professor Dr. Dinh Trong Thinh noted that similar suggestions to tax savings interest were raised more than a decade ago but were ultimately rejected. He expressed surprise that the idea is being reconsidered.

"In 2011, there were discussions about taxing savings interest, but it was deemed unnecessary and not conducive to economic growth," Dr. Thinh said.

He highlighted several reasons why taxing savings interest is inappropriate. First, bank interest rates are currently low. A 100 million VND ($4,000) deposit earns only about 6 million VND ($240) in interest annually. Given these modest returns, the potential tax revenue from such a policy would be minimal.

Second, to accumulate 100 million VND in savings, individuals have already paid taxes on their earnings. Considering inflation, the real value of their interest earnings is already diminished.

"Savings deposits are a crucial resource that banks use to finance loans for economic development. If people stop depositing money, where will banks find funds to lend? Taxing savings interest would be counterproductive," Dr. Thinh explained.

Concerns over capital flight from banks

A personal banking advisor at a commercial bank told VietNamNet that savings deposits represent money left over after taxes have been paid. Taxing savings interest would amount to double taxation, which is inherently unfair.

"No depositor would support this policy. Everyone - individuals and businesses - already pays taxes. The issue isn’t about the size of deposits but the principle. There’s no way to track whether deposited funds have been reinvested multiple times using prior interest earnings," the advisor noted.

The advisor warned that if savings interest is taxed, people may withdraw their money and shift investments to other assets such as gold, real estate, or speculative markets. This could negatively impact inflation control, de-dollarization efforts, and the push toward a cashless economy.

Economic expert Dr. Can Van Luc echoed these concerns in an interview with Nguoi Lao Dong, stating that savings interest is an essential income source, especially for middle- and lower-income groups. If taxed, savings deposits may decline, forcing banks to raise lending rates, which could negatively affect businesses.

Divided opinions within the banking sector

Despite opposition from many experts, a senior executive at a commercial bank expressed support for Can Tho’s proposal, pointing out that many countries already tax savings interest.

According to the latest data from the State Bank of Vietnam (SBV), as of November 2024, total personal deposits in banks exceeded 7 quadrillion VND ($280 billion), the highest level ever recorded. Deposits grew by 7.16%, or 467.5 trillion VND ($18.7 billion), compared to the end of 2023.

In November alone, an additional 22.1 trillion VND ($880 million) was deposited into the banking system. Meanwhile, corporate and institutional deposits reached 7.26 quadrillion VND ($290 billion), up 6.26% from the end of 2023.

SBV data also indicates that average deposit interest rates at commercial banks range from:

0.1-0.2% per year for non-term deposits and term deposits under one month.

2.9-3.8% per year for term deposits of 1 to under 6 months.

4.4-5.0% per year for term deposits of 6 to 12 months.

5.2-6.0% per year for term deposits of over 12 to 24 months.

6.9-7.2% per year for term deposits exceeding 24 months.

Tax implications under Vietnam’s current law

Article 3 of the Personal Income Tax Law lists 10 categories of taxable income, including:

Business income

Salary and wages

Investment income

Capital transfer income

Real estate transfer income

Lottery winnings

Royalties

Franchise income

Inherited assets

Gift income

Currently, interest from personal savings is not included in taxable income.

Tuan Nguyen