Higher second home tax to pose challenges

The Ministry of Finance (MoF)’s proposal to tax second and additional homes to restrict property speculation and oversupply would face challenges. - Photo enternews.vn

Revenue from property tax makes up 2 per cent of GDP in OECD countries and 0.6 per cent in developing economies, according to the ministry. In Việt Nam, housing purchases have increased as average income per capita rose from US$1,400 in 2013 to $2,200 in 2016. It is expected to rise to $3,400 by 2020.There is no specific property tax law in the country, but there are taxes related to property such as the tax on agricultural and non-agricultural land use. However, the policies have not resulted in stable revenue for the State budget.

The taxation was first proposed in 2010 but the draft was amended and approved as a non-agricultural land use tax law.

The Government suggested three taxation solutions. First, imposing a single tax rate of 0.03 per cent on houses with taxable value of VNĐ500 million and higher. Second, taxing houses based on their area, and third, zero per cent tax on houses valued at up to VNĐ500 million, and 0.03 per cent tax on the rest.

Economist Nguyễn Trí Hiếu told online newspaper vietnamnet.vn that the proposal was reasonable. However, there are many issues which need resolved to implement the taxation.

For example, people could register their houses under the names of other people for tax evasion, and it is difficult to clarify second homes as Việt Nam does not have a concentrated information system.

Hiếu said the tax could only be imposed on some people, causing unfairness among the rest.

It would be also difficult to define a house’s value as foundation for the taxation as its value would change every year.

“We need one to three years to complete all regulations relating to land and housing management before taxing the second and additional homes. Land ownership in Viet Nam has been complicated through many periods. Meanwhile, the property market has not operated under market mechanisms. It needs improvements to ensure fair taxation,” he added.

Agreeing, lawyer Trần Thái Bình from LNT & Partners Law Firm in HCM City said the policy was necessary. However, the ministry should comprehensively study before implementing it.

Bình said if the Government hurried to impose the tax, it would not reduce shortcomings in the property market and increasing pressure on housing prices.

Low-income earners therefore could find it harder to buy houses.

“It is not the time to apply the policy. The Government should have solutions to ensure low-income earners have houses before thinking about taxing second homes,” he said.

Housing quota needed

Economist Đinh Thế Hiển told the newspaper that asset taxes are imposed on people with assets and the tax should be bigger on those who own more assets than they need, i.e. those who own houses for rent or large villas, compared with those who own small houses.

“I think the Government should stipulate the area which a person should have depending on urban or rural regions. The area, which is higher than stipulation, should be taxed,” he said.

Trần Khánh Quang, general director of Việt An Hòa Real Estate Investment Company said authorities should pay attention to feasibility.

Quang added that the ministry should have an integrated and reasonable taxation level. If the tax is too high, property prices would increase, making it hard for people to buy houses.

In addition, a high tax could encourage people to break laws and regulations and reduce transparency in the estate market.