Caution needed as Vietnam mulls over property tax

Monday, 2017-09-11 05:25:54
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NDO - Although Vietnam already has a set of taxes on land, it has yet to impose a property tax like many other countries. The Ministry of Finance is looking to raise the government’s income by levying a property tax rate that fits in with Vietnam’s current situation.

Three concerns

Statistics show that Vietnam’s per capita income has been rising rapidly, from US$1,400 in 2013 to US$2,200 in 2016, and is projected to reach US$3,400 by 2020. The rise in income is also coupled with an increase in property ownership. Meanwhile, land tax revenues only account for a minimal 0.03% of the GDP and just 0.15% of the total government income. That is why the Ministry of Finance (MOF) is considering taxing individuals who own a second house or more.

According to the MOF, the property tax will not only help to increase government revenues, redistribute personal wealth and improve social equality but will also help to build a system of taxes in line with international practices, whilst stabilising the property market, restricting speculation and increasing the efficiency in using properties.

However careful preparations are needed before the property tax law is officially enacted as this type of tax is not easy to collect and it is also often difficult to determine the ownership of the second houses for a number of reasons.

Firstly, a clear definition of the properties on which the tax is to be levied has yet to be provided. Moreover, the collection of the property tax can be easily nullified by legal loopholes if there are no transparent regulations on the age of owners and house registration in other people’s names.

Secondly, Vietnam is levying the land use tax and considers the land use rights as a type of personal and corporate property. If the definitions are not established clearly, it could lead to conflict or overlapping taxes. A house worth a few thousand dollars cannot be equated with a villa worth millions of dollars. The government also cannot levy tax on the second and more houses whose total value is even less than another one which is outside the taxation scope.

Thirdly, it is necessary to develop convincing arguments in order to reach a strong public consensus on how properties should be taxed and the sanctions on those who fail to report their large assets or own homes abroad.

In addition, it should be anticipated that collecting the property tax could easily present a chance for corruption as the taxpayers and tax collectors could collude with each other to avoid paying taxes.

An appropriate roadmap needed

If the scope of taxation excludes low-value houses and solely covers high-value houses, it could give new impetus for increasing investment in and ownership of affordable houses which are currently in short demand.

However, the property tax on the second houses is new and highly significant therefore it requires a roadmap which is large enough for adequate consideration and the law-making process should take into account thorough research, international experience and public feedback.

In addition, in order to allay any concerns that the property tax could become a burden on enterprises and homebuyers, reform is needed in the collection of land use fees and the property tax must not be levied on houses with low value, such as those below VND1 billion (US$44,000) and households with many houses whose total value is below the average threshold.

Furthermore, the tax rates should follow different brackets and be appropriate with local conditions. At the same time, other measures are needed to prevent house speculation and to stabilise the property market.

Under any circumstances, the establishment of a national information system on property transactions and property owners is necessary to ensure both efficient state management on properties and successful property tax collection.