Effective spending required for people’s acceptance of new property tax proposal

The Ministry of Finance has proposed imposing a new tax on people who own property worth VNĐ700 million ($31,000) or more. - Photo vneconomy.vn

The Ministry of Finance claims that the 0.4 per cent tax would bring in VNĐ31 trillion ($1.3 billion) per year and help Việt Nam “get in line with regulations on property tax rates in other countries.”

But does that get it line with the people?

Not likely.

Currently, there is no tax on owning a house. Land users must pay an annual non-agriculture land use tax at a progressive rate of 0.03 per cent to 0.15 per cent of the land price per square metre, determined by the state every five years.

The proposal means house owners will have to pay a new kind of tax for their house, apart from the land use tax they’re paying now.

The finance ministry justified this new tax by saying that data from other countries show that the lowest property tax rate stands at 0.2 per cent, which makes Việt Nam’s tax rate too low. Also, the new policy would help stabilise the property market, restrict speculation and increase efficiency in using properties.

Now let’s take a look: The average wage per person in Việt Nam is around VNĐ3.2 million ($150) a month. It’s not easy to save up VNĐ700 million to buy a house – not to mention that in order to own a house of such value, owners will have to pay various types of taxes already. That includes a 10 per cent value added tax, 0.5 per cent land use tax and some other extra fees for necessary registration procedures.

It’s a lot of taxes already. One more thing to consider: In Việt Nam, people don’t own land. People can only have a land use certificate. This means if you buy a property, you never really own it. In Việt Nam you lease it from the Government and the Government can always take that land back at any time.

And if the finance ministry wants to prevent real estate speculation, why not add a tax on second homes? Owning a house to live in is important to many people, even those who must scrimp and save to achieve the dream. A house of VNĐ700 million or VNĐ1 billion is often owned by those with low or average income – not those with high income. It’s not fair to impose such a tax on people with lower income but ignore those with two or three more properties just because “it’s difficult in Việt Nam to identify who has two or more houses”, as the finance ministry once said.

It’s true: People can’t expect the Government to work for them for free – some types of tax collection are necessary to ensure effective operation of the Government. People can only be willing and happy to pay taxes if the collection is rational and they know their tax payment will be used effectively for the community’s good.

In Việt Nam, people are often under-informed of how their tax payments are spent. When the gasoline taxes were increased, many people were opposed. I don’t think they opposed the tax itself – they wanted to be properly informed of how the tax is going to be spent to protect the environment, how the air and the environment were going to be improved after raising the tax.

In this situation, the authorities need to be transparent on how the new tax will benefit people. Because collecting tax is not only for the sake of Government’s spending, it must be used to serve the people and the community. If the finance ministry and the Government can prove to people that the tax is used wisely, effectively and transparently, I believe people would accept the new tax happily.

Alternative approach

Đặng Hùng Võ, former deputy minister of environment and natural resources, agreed with the property tax proposal. He said he thought it was necessary for the Government to improve infrastructure, public services and urban development. However, he argued the housing property tax should adopt an area-based approach rather than a value-based approach.

This can be seriously considered: taxes should focus on developed areas and should not create burdens for low-income people. A reconsideration and thorough review of the property tax proposal based on this approach would be better accepted by the people.

At the end of the day, too much tax collecting is a signal of ineffective government budget balancing. Tightening State spending is still a more acceptable approach when the authority is faced with budget problems.

Recently the Government has show its determination on this matter by setting a goal by 2021 to reduce the state payroll by at least 10 per cent compared to the 2015 figure. But the road is long and windy: Government auditors earlier this year urged state departments to tighten control of human resources after finding 57,175 public workers on the payroll are actually not needed.

People will accept reasonable tax payments – but the Government also needs to earn this with effective spending and zero tolerance for waste in its system.

Prime Minister Nguyễn Xuân Phúc said in a meeting earlier this week that the Government would try to listen to people’s voices and needs, mentioning the finance ministry’s property tax proposal. Let’s hope we will be heard, and answered.

Finance Ministry proposes new housing tax The Ministry of Finance has proposed a tax on houses depending on their construction value as part of a draft law on property tax.