VAFI has sent an official letter to the Prime Minister, Ministry of Finance (MOF) and State Bank of Vietnam (SBV) proposing the VAT on physical gold trading activities.

Preventing speculation

Regarding the current tax policy on gold trading, according to VAFI, gold bars are exempt from VAT, while VAT on jewelry gold trading is calculated based on the difference between selling and buying prices multiplied by a 10 percent tax rate (according to the listed price table).

“For example, if a business buys and sells one tael of jewelry gold at prices ranging from VND97 million to VND100 million, with a price difference of VND3 million, it only has to pay about VND300,000 in tax. But if VAT is calculated using the deduction method, the invoice would show a price of VND110 million, and the tax payable would be VND10 million. Therefore, the VAT collected differs by about 30 times between the deduction and direct methods,” the association said.

Recently, MOF proposed adding a new tax, under which the sale of gold bars would be subject to 0.1 percent of the transfer value. For instance, selling one SJC gold tael worth VND100 million would result in a tax of VND100,000. 

VAFI believes that such a low tax rate is ineffective in curbing the massive capital flow into the gold market.

Such a tax policy has strongly encouraged speculative capital to flow into gold trading, allowing short-term speculation at minimal cost, and even creating artificial supply and demand at certain times to attract more participants and inflate market demand.

According to VAFI’s estimates, Vietnam’s gold reserves are over 2,000 tons, equivalent to around $250 billion at current market value. Most of this gold is bought and “stored under the bed,” not returning to the commercial banking system.

From a macroeconomic perspective, gold accumulation is even more harmful than holding foreign currency, as foreign currency holdings often circulate back into the banking system.

“In the last years, if VAT had been applied to gold trading as to consumer goods, the banking system could have gained around $100 billion instead of losing it, and that foreign currency could have been used for import-export payments. The local currency would have been much stronger, as the SBV could have easily stabilized the exchange rate and significantly lowered deposit interest rates.

Tax exemptions for gold trading (mainly gold bars) have led to a sharp increase in the ‘goldization’ of the economy. The current tax regime gives the gold trading industry the greatest privileges, even more than many sectors that truly need tax incentives and investment encouragement,” VAFI stated.

10% tax on gold sales invoices

VAFI recommends revising the current tax policy. Accordingly, the association proposes that trading in both jewelry gold and gold bars be subject to VAT under the deduction method, like other ordinary goods, with a tax rate of 10 percent to ensure fairness in tax obligations.

“If we compare gold trading with real estate, property sales are taxed under the deduction method, where homebuyers pay a 10 percent VAT, and sellers also pay a 2 percent personal income tax based on the selling price. Therefore, sales of gold bars and jewelry gold (collectively referred to as physical gold) from business establishments should be taxed 10 percent on the sales invoice,” VAFI noted.

The association believes that amending the tax policy in this way would nearly eliminate short-term speculation, end price manipulation and profiteering, and significantly reduce speculative demand in the gold market. Capital would instead flow into the banking system, strengthening the local currency and increasing foreign exchange reserves in the banking network.

Gold demand is expected to decline sharply when accompanied by other stabilizing policies. According to VAFI, the SBV should maintain exchange rate stability in the short, medium, and long term to attract both direct and indirect foreign investment.

Currently, the SBV should also adopt a reasonable policy of raising deposit interest rates. Once the new gold tax and a reasonable property tax are in place, the SBV could maintain much lower interest rates than at present while still ensuring exchange rate stability.

Nguyen Le