The appropriate application of tax policy for both promoting the sources of the stock market and encouraging the market participants has become a matter for many stakeholders.
Tax applied for transfer of financial instruments has been imposed over 40 economies, both advanced and developing. The common characteristics of securities transaction is to be registered, then the tax on securities transfer is considered by many persons as to be classified registration tax or stamp duty. Typically, the securities transfer tax is applied for 2 reasons: The first is, the securities transfer tax is a significant potential for increasing the State Budget’s revenues, especially in the situation of the Budget imbalances in many countries. The second is, the introduction of securities transfer tax may help prevent the phenomena of speculation which is potential of destabilizing the market.
Impacts of stock transfer tax on the stock market
Market movement
Imposing securities transfer tax will help limit the "abnormal" transactions, lead the market to be more stable. One of the reasons given for imposing the transfer tax is to reduce the market volatility.
Trading volume
The application of tax must take into account the international factors. If the domestic market applies higher tax than other markets, it will face the situation when investors may shift their assets to another market with lower level of investment cost.
Liquidity
The transaction frequency may be cut due to application of transfer tax and may lead to reduce the market liquidity.
Cost of Capital
It is also said that the transfer tax will increase the cost of capital, which may reduce the frequency of transactions.
Nowadays, most worldwide markets are subject to transfer tax at the rate being adjusted accordingly, depending on the conditions of each market and the policy of each nation.
In Vietnam, the Government and the Ministry of Finance have adopted many tax incentive to support the securities market. Particularly, in 2009, while the securities market was facing with many dificulties, the Government proposed the National Assembly to exempt the Personal Income Tax (PIT) for the year income from capital gain, capital transfer and securities transfer. However, it should be noted that for the purpose of developing the securities market, it needs series of synchronized policies, in which, tax is one of the methods supporting the market. Morever, at the current time, every person, individual or institutional, once participate in the market is obliged of contributing to the Budget’s revenues. In the context of dificult economy, investing in securities markets has been experiencing common dificulties with investment activities of other industries, including the real economy.
The application of securities transfer tax may create specific impacts on the securities market. Therefore, to stabilize the market activities, the international experience is that a separate tax might be applied for the income from transfering securities, which is commonly calculated with a tax rate on sales’ value. While developing the securities transfer tax as a separate tax, which is not associated with income tax in nature, it may facilitate the tax collection and tax management. Also, the Government may use this method for supporting the market more quickly, in a more sensitive and efiective way.