The Ministry of Finance has proposed taxing stock dividends immediately upon receipt, rather than upon sale, in a draft amendment to Decree 126. Issuing companies would withhold and remit the tax on behalf of individuals. The VCCI suggests reconsidering this proposal.

While acknowledging the importance of collecting taxes effectively, the VCCI emphasizes the need to encourage investment and business development. Taxing stock dividends immediately, they argue, undermines investor benefits and discourages long-term investment.

Stock dividends don't generate actual income for shareholders upon receipt. They represent a technical adjustment in capital structure, increasing outstanding shares without increasing the shareholder's total asset value.

For example, an individual holding 100,000 shares priced at 30,000 VND per share would receive 50,000 additional shares in a 2:1 stock dividend. The share price would adjust to 20,000 VND, maintaining the total asset value at 3 billion VND. Despite no income generated, the individual would owe 25 million VND in personal income tax.

"Shareholders receive no immediate benefit from stock dividends. Taxing them immediately creates financial pressure and liquidity risks," the VCCI assesses. This policy reduces the appeal of long-term investment, forcing investors to pay taxes before realizing profits.

Stock trading at Rong Viet Securities Joint Stock Company (TP HCM), 10/2024. Photo: An Khuong

Stock trading at Rong Viet Securities Joint Stock Company (TP HCM), 10/2024. Photo: An Khuong

Companies can retain after-tax profits or distribute them as cash or stock dividends. Stock dividends allow companies to retain capital for operations while "sharing" profits through increased ownership. Cash dividends benefit shareholders immediately but reduce company capital, impacting cash flow.

Tax revenue from stock dividends between 2016 and 2024 totaled approximately 1,318 billion VND. Immediate taxation could yield an estimated 17,420 billion VND.

This data suggests most shareholders hold stocks long-term. The "uncollected" 10,000+ billion VND remains within companies, fueling reinvestment, job creation, and indirectly contributing to GDP growth and stable tax revenue.

Stock dividends balance company and shareholder interests, encouraging long-term investment. Taxing them immediately makes this option less attractive, potentially hindering long-term revenue for the tax authority.

"Why choose stock dividends when cash dividends provide immediate funds for tax payments without the inherent risks of stocks?" the VCCI asks. Forcing immediate taxation could lead to capital withdrawal, reducing reinvestment and growth potential.

Phuong Dung