Grappling with gold

Mr. Pham Xuan Hoe, General Secretary of the Vietnam Financial Leasing Association, former Deputy Director of the Banking Strategy Institute

To prevent money laundering in gold transactions, we need more than just non-cash payment regulations and gold invoices. All citizens must transparently declare their income to effectively address money laundering through gold.

In Vietnam’s developing economy, the cash-to-total means of payment (M2) ratio remains high, ranging from 9 to 11 per cent, with M2 money supply at VND1,400 to 1,600 trillion ($54.9 to 62.7 billion), making it easy for people to ask others to buy gold on their behalf while maintaining proper documentation. Lowering this cash ratio is essential to control money laundering.

Furthermore, creating a shared database for ministries is complex and requires a long-term process. Data sharing is a challenge, however, as many ministries are reluctant to share information. A former National Assembly Chairman once commented that up to 58 per cent of ministries and departments do not want to share data.

In amending Decree No. 24/2012/ND-CP, roles and coordination mechanisms between ministries must be clearly defined.

Firstly, the State should not both regulate and participate in the market. Decree No. 24 has effectively mitigated the risk of economic “goldenization” and maintained macro-economic stability, but the current gold monopoly should end. All businesses should be treated equally, on the condition that their gold is 99.99 per cent pure. The Directorate for Standards, Metrology and Quality under the Ministry of Science and Technology should ensure gold purity at businesses.

Secondly, management roles need clarity. Drawing from the experience of the Central Bank of China, it is beneficial to separately manage the foreign exchange gold market and the commercial gold market. In Vietnam, clear distinctions must be made between gold as a regular commodity, jewelry gold, and gold intended for transformation. Precise regulations are necessary to determine whether these categories fall under commodities or foreign exchange reserves.

Thirdly, transparency in gold trading is crucial. Limiting cash transactions and enforcing non-cash payments for gold, as per Decree No. 52/2024/ND-CP, will reduce money laundering. Implementing management tools like invoices and connecting gold shops’ computers with tax authorities is also vital.

Fourthly, effective coordination between agencies is essential to fight gold smuggling and market manipulation, leading to price manipulation and market instability. Comprehensive measures are needed to address these issues.

Associate Professor Nguyen Huu Huan, Senior Lecturer, University of Economics Ho Chi Minh City

The phenomenon of “goldenization” poses significant economic risks, particularly in stabilizing the macro-economy. Governments around the world seek to limit gold holdings due to its potential impact on domestic currencies.

Throughout economic history, transitions from the gold standard to the dollar standard have illustrated the challenges posed by excessive gold reserves. Central banks worldwide are progressively reducing the circulation of gold to mitigate its economic influence. For instance, the UK and the US have historically regulated gold ownership to prevent currency destabilization. In the US, regulations from 1933 to 1971 restricted private ownership to pure gold or 99.99 per cent gold. Citizens were permitted to possess only jewelry-grade gold under specific regulations, typically around 61 to 75 per cent, in contrast with Vietnam’s practice of allowing up to 99 per cent purity in gold rings, which creates regulatory challenges.

A fundamental issue arises when gold retains currency-like status, complicating central banks’ ability to conduct effective monetary policy and macro-economic stabilization.

Countries like China, India, and Vietnam all face challenges from the cultural norm of gold hoarding, such as gold jewelry being part of dowries. While China’s ample foreign reserves mitigate its concerns, India and Vietnam implement measures during periods of economic stress to manage and regulate the private ownership of pure gold.

Consequently, central banks globally explore various measures, including extreme acts like restricting private ownership of physical, pure gold, to safeguard macro-economic stability and bolster the strength of the domestic currency.

Mr. Nguyen Van Phung, Member of the Central Executive Committee of the Vietnam Federation of Accountants and Auditors (VAA), former Deputy Director of the General Department of Taxation

Regardless of the policy implemented, the interests of 100 million people must always be considered. Policies should facilitate smooth business operations, encourage financial flows, and support economic stability, rather than introducing new taxes that may incentivize individuals to convert money into gold reserves. Such tax policies are fundamentally flawed.

I believe our current tax framework for business operations and gold trading is fairly comprehensive. The key challenge lies in effective management to ensure fairness between sellers, buyers, and other stakeholders. Effective tax administration is crucial to prevent revenue losses, ensuring that situations where gold shops report taxes on only a fraction of their sales are avoided. This evasion of sales and income taxes reflects shortcomings in tax oversight and accountability due to inadequate management.

To manage the gold market effectively, I propose adopting several measures driven by public demand. Over many years, I have observed that consumers, regardless of transaction size, consistently request invoices from gold shops. This practice serves as proof of purchase authenticity and enables future sales at competitive prices. Current regulations mandate the use of electronic or integrated invoices to transmit data to tax authorities, and efforts are underway across tax agencies at all levels to implement these systems diligently.

Furthermore, effective management requires involvement from political institutions, as relying solely on tax authorities is insufficient. While tax agencies are making major efforts, they face constraints in database access and institutional authority. Therefore, I advocate increased collaboration and data sharing between State management agencies to support tax authorities in monitoring and accurately recording transaction volumes in the gold market. Improved transaction management will enhance State budget revenues without the need for additional taxes.

In addition to defining roles and ensuring reasonable budget incentives, effective tax management entails identifying transaction participants, how buyers transact, how sellers respond, and the quantities involved. This data, contributing to a national shared database and other tools, will strengthen societal management and enhance efforts to combat money laundering.

Lawyer Nguyen Thanh Ha, Chairman of SBLaw

Internationally, many countries operate gold markets through various trading platforms, where tax authorities collect taxes based on transactions. In Southeast Asia and China, similar to Vietnam, value-added taxes apply, alongside personal income taxes for individual investors. While taxes are vital for managing the gold market, they are not a universal solution for overseeing trading platforms.

Regarding legal provisions to prevent tax evasion and money laundering in gold transactions, alongside Decree No. 24/2012/ND-CP dated April 3, 2012, regulating gold business operations, gold trading enterprises must also list prices according to State Bank of Vietnam (SBV) regulations. The Law on Anti-Money Laundering mandates reporting transactions of VND400 million ($15,685) or more to relevant authorities for documentation. Recently, with the introduction of electronic invoices, all gold transactions entering the market must issue connected electronic invoices to tax authorities.

These existing legal regulations aim to combat tax evasion and revenue loss while documenting evidence to prevent future money laundering activities. Effective money laundering prevention requires comprehensive data.

Moreover, a recent government decree on non-cash payments enhances anti-money laundering efforts. Vietnam can learn from global gold market management to address domestic price disparities and public demand for regulated gold trading platforms. Decree No. 24 served as a “firefighting” measure during its implementation phase. However, after 12 years, domestic gold prices remain significantly higher than global prices, prompting citizens to rush to buy gold. It is therefore necessary to amend Decree No. 24, with consideration given to whether physical gold trading platforms should be established to regulate and manage the gold market.

Unlike Vietnam, many countries recognize conditional gold trading platforms, prompting concerns over fraud and economic risks. Implementing a controlled sandbox mechanism could mitigate these risks, ensuring these platforms meet taxation and regulatory standards.

Mr. Nguyen Van Duoc, Director General of the Trong Tin Accounting and Consulting Company, Standing Member of the Executive Committee of the Vietnam Tax Consultants’ Association

Vietnamese law does not currently permit gold investment but treats it solely as a commodity subject to full taxation, similar to other goods. To broaden the tax base on gold, the government would need to review and adjust numerous laws, treating gold as a form of investment and establishing investment channels.

In my view, effective gold market management should prioritize three key aspects. Firstly, if managing physical gold as a commodity, clear standards for quality and labeling must be established. Secondly, strict management of input and output invoices is crucial. Thirdly, regulating cash flow through non-cash payment requirements during gold transactions is also key.

Currently, alongside licensed gold bar dealers operating under tight State Bank of Vietnam (SBV) regulations are numerous small household-operated gold shops. Transactions in these small businesses often lack strict invoicing, as many customers do not request receipts.

For household-run gold businesses, tax declarations follow three methods: standard filing, income taxes on profits, and lump-sum taxation. While standard and income tax filings require regulated invoicing, lump-sum taxation does not. Therefore, clear guidelines are needed for issuing electronically connected invoices to tax authorities for those under lump-sum taxation. Strict invoicing management will aid in tracing gold origin and identity, improving efforts to fight gold smuggling.

Regulatory bodies should also consider proposing mandates for non-cash transactions in gold purchases and sales. Implementing such measures not only promotes transparency in gold market management but also aids in tax administration, reduces revenue losses, and prevents underreporting and tax evasion.

Fundamentally, effectively managing gold businesses hinges on overseeing two critical aspects: controlling the supply chain and supervising gold sales transactions. Regulating both transactions and payments is crucial to prevent management loopholes. Therefore, enhancing rules for non-cash transactions in gold is vital to bolster sound market management practices.

However, current tax laws stipulate non-cash payments for transactions above VND20 million ($785) eligible for deductions and inclusion in expenses. Consequently, aligning regulations and managing non-cash payments in gold transactions with existing legal frameworks is crucial to achieving macro-economic management objectives. As the gold trading sector falls under the specialized oversight of the SBV, regulations on non-cash payments for gold transactions fall within its jurisdiction, thereby aligning with macro-economic management goals.

Implementing regulations on non-cash payments in gold transactions requires a phased implementation plan, considering exemptions for economically disadvantaged areas. Concurrently, accelerating digital economy initiatives and promoting public awareness about the benefits of non-cash payments are vital for fostering societal consensus.

For gold trading enterprises, the government should address their challenges and provide support, guidance, and public education to ensure compliance with regulations and prevent disruptions to business operations. Conversely, stringent penalties should deter non-compliance, ensuring effective policy enforcement.