A plan to cut the 5 percent tax rate on dividends will boost investor sentiment amid volatile stock market conditions, experts say.

In a meeting with business representatives in Ho Chi Minh City early this month, Deputy Finance Minister Do Hoang Anh Tuan announced that the ministry would propose to the National Assembly a tax cut on dividend payments to shareholders.

He said a more reasonable tax policy will help encourage stock investors.

Many investors have been complaining that the tax rate, unchanged since July 2010, is not fair given that interest payments from bank deposits are not subject to income tax. As the market is still stagnant, they are not happy paying taxes on the already small profits that companies pass on to them.

The benchmark VN-Index has lost 5 percent over the past two months. Market analysts said ongoing concerns over inflation and lower post-audit earnings of listed companies have kept investor confidence and market liquidity in the lower brackets.

Huynh Anh Tuan, general director of SJC Securities, said a dividend tax cut would not have any immediate impact on the market. However, it would cheer up investors eventually.

“Reasonable polices are needed to make sure stock investors don’t avoid the market, thinking they are treated unfairly,” Tuan said.

Pham Linh, general director of Hanoi-based VISecurities, said Vietnam’s stock market is still developing and thus, it’s necessary to change unreasonable policies on the way. When such policies are changed, investor confidence will increase, Linh said.

Investors also find the capital gains tax unfair.

Stock investors in Vietnam are given two options when paying capital gains tax: they can pay 0.1 percent of the value of each transaction, or pay 25 percent on their annual profit at the end of the year.

The second option is ignored by almost all investors since it is not easy for them to calculate and provide proof of their capital gains throughout the year. As a result, they opt for paying the 0.1 percent tax on every transaction.

The problem with the first option is that the tax is calculated based on transaction value, which means investors have to pay it even if they are actually incurring losses.

The Vietnam Association of Financial Investors, a group of Vietnamese banks and funds, said the government should allow capital gains tax payments on a daily basis but only impose the tax on investors who really make profits.