Spotlight on Vietnam

Chapter 2 - Regulations and Tax Regime

  • Vietnam’s gold market has become heavily regulated, particularly since the implementation of Decree 24 in 2012, which forced almost 80% of gold traders out of business.
  • A recent draft focused on relaxing restrictions and gradually allowing imports. At present, only the Saigon Jewellery Company has been authorised to import and sell gold bullion.
  • Import quotas will likely be granted to 4-6 firms, and over the medium term, jewellery manufacturers may be allowed to import gold.

Regulations

As touched on in the previous chapter, gold has often played a fundamental role in Vietnamese society. While the country liberalised its gold market in the late 1980s, an increasing trade deficit and fear of currency depreciation saw the central bank impose several restrictions on the gold market.

As a result, the market is now highly regulated, with legislation governing gold imports, exports, and local sales. This is the key reason why the domestic gold price trades at a massive premium to the international price, ranging between $300-800/oz. However, the market was not always so heavily regulated. Below is a brief history of how gold market legislation has evolved:

1986: Introduction of various economic reforms, which eventually saw the government allow the production of local gold bars in 1988.

1999: Vietnam liberalised its gold market, abolishing all restrictions on the import, export, and domestic sale of gold bullion and gold products.

2005: Import duty on gold (refined and semi-manufactured products) reduced from 1% to 0.5%.

2007: Leveraged trading allowed on gold, which saw a number of banks open trading floors in Vietnam.

2008: Vietnam pauses gold imports, due to a surge both in the gold price and the scale of shipments the previous year.

2009: Gold imports resume to help curb parallel trading and reduce local premiums.

2012: The government issues Decree 24 which enable the State Bank of Vietnam (SBV) to directly intervene in the gold market. This brought the domestic gold industry to an almost complete halt.

Under this Decree, only companies with a capital of more than 100bn VND (roughly $4.3m), tax payments above 500m VND ($20,500), and branches in at least three provinces were allowed to trade gold. This caused more than 80% of gold traders and most trading floors to close.

Source: Bloomberg

Credit institutions offering gold loans to the public also faced significant headwinds as they were required to have charter capital (the total value of assets under management) of 3trn VND ($129m) and a presence in five provinces. Separately, to qualify as a gold jeweller/ manufacturer, a company must lawfully establish itself and possess a business registration certificate to make and sell jewellery.

Following the Decree, the government imposed further restrictions on the gold market by taking complete control of imports and selling bullion locally. As such, only the Saigon Jewellery Company (SJC) can import gold and sell bullion domestically. Foreign jewellery manufacturers, who bring Foreign Direct Investment (FDI) into Vietnam, can also import gold. However, they are only allowed to import gold for export purposes (i.e. to be converted into jewellery and exported). Such companies must secure an import license for re-export and pay a 1% import duty upfront. However, the duty can be reclaimed once the jewellery has been exported (and the relevant paperwork has been submitted to the government).

Proposed Regulations
Amendments to Decree 24 have been table for quite some time. However, over the last two years, there appears to have been the beginning of a gradual shift in the government’s stance towards the gold market. Recent discussed have centred on easing regulations in a phased manner and allowing gold imports after certain conditions are fulfilled.

Under the latest draft of the new regulations, gold imports would be allowed to manufacture jewellery, both for domestic and export markets. That said, some approvals or quotas may still apply to companies operating in this sector.

In the first phase, import quotas will likely be issued to 4-6 companies on this basis. Our understanding is that these quotas will be issued based on the manufacturers’ existing business. The companies will also require approval from the SBV as to their manufacturing capabilities and capacity.

Under the second phase, jewellery manufacturers will be allowed to import gold freely to manufacture jewellery. There is also a discussion on allowing banks to actively participate in the gold market as they were many years ago. While the government will ease import restrictions related to jewellery, they are likely to keep restrictions on manufacturing investment products.

Tax Regime

Domestic Jewellery Consumption
Consumers pay 10% VAT on the full purchase price if they buy gold jewellery in Vietnam. For example, if a 1-tael (37.5g) necklace costs 60,260,000 VND (the value of the gold) and 9,500,000 VND (making charges), the consumer pays 10% VAT on the combined value, which comes to 6,976,000 VND.

Source: Metals Focus, Bloomberg