Economic Sector

Last updated: Wednesday, May 15, 2019


Property Tax Needs to Target Capable Taxpayers

Posted: Tuesday, July 24, 2018

The Research Institute for Development Communication (RED) recently cooperated with the Ministry of Finance’s units to organise a workshop on “Property Tax - Policy Suggestions for Vietnam” in Hanoi with the goal of assessing impacts of this sensitive bill on Vietnam’s economy and society.

Ms Le Thi Mai Lien, Director of the Public Financial Policy Department at the National Institute for Finance under the Ministry of Finance, said, according to the World Bank (WB), 174 out of 193 countries and territories are applying property tax. The purpose of this workshop is to provide some policy suggestions to the Government of Vietnam in drafting the Law on Property Tax and recommend property tax to houses and land (replacing agricultural land-use tax and non-agricultural land-use levies, adding housing tax), tax exemption and reduction for public properties, land and buildings used for religious and public utility purposes. Other levies on property (registration fee, land-use rights transfer tax, etc.) are kept unchanged from current regulations.

She added, to make the law tight, the law necessarily specifies taxable area thresholds (tax will be applied if exceeding a certain degree from thresholds). Taxation should be based on two frameworks: Based on housing and land price frameworks provided by the Provincial People’s Committee for the short-term purpose, and building the housing and land database system for the medium and long terms.

The Law on Property Tax should also define tax brackets decentralised thereof to localities which will self-determine tax rates appropriate to their development level. Different tax rates will be levied on purposes of use to ensure economical and efficient use of land while ensuring priority for each sector in each period. At the same time, progressive tariffs will be applied to redistribute and guarantee vertical equity.

Mr Nicolas Drouin, First Secretary of the Embassy of Canada in Vietnam, said property taxes in Canada are based on two underlying principles: Principle of benefits received (by property owner) and principle of ability to pay (of property owner).

As services provided by local governments directly benefit local property owners, it is the property owners who should pay for them. Every year, municipal administrations review budgetary needs and cast votes on property tax rates based on inflation and new infrastructure needs if necessary. Municipal authorities must hold public consultations on fiscal requirements and related property tax increases. Current assets are revalued every four years to make sure that valuations are ​​close to the property market. The application of price stabilisation programmes helps restrict impacts of valued asset increases, he said.

Mr Truong Thanh Duc, Chairman of the Board of Members of BASICO Law Firm, said that the Law on Property Tax should be based on practical conditions in Vietnam to work out regulations. Specifically, all properties must be counted if taxed and then excluded specific taxes. At the same time, property tax is only imposed on capable taxpayers and lawmakers thus should have tax exemptions for poor households. Furthermore, tax is only subject to valuable assets and progressive tax is used, starting with a very low value. The combined value of house and land is counted when tax is taken.

With a closer analysis, lawyer Duc said, the Ministry of Finance proposed a tax rate of 0.4 per cent on home and 0.4 per cent on land. This rate equalises high-income earners and low-income earners. Applying the same tax rate is unfair and fails to meet the taxing target. Besides, overlapped tariffs should be avoided in drafting the law. It is normal to tax a house worth of VND10 billion but it is unreasonable to levy tax on two houses worth VND1 billion, with one used to live and the rest for rent because a rented house is subject to a variety of taxes such as excise tax and value added tax. To this effect, lawyer Truong Thanh Duc said that property tax should be imposed on a property worth VND5 billion or more, many times higher than the proposed taxable value of VND700 million onwards proposed by the Ministry of Finance earlier.

Anh Phuong

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