Sharp rise in land tax sinks titanic tourism projects

Bui Ngoc Diep, deputy chairman of the Vung Tau Tourism Association and Skybridge Intercontinental Development’s representative, said that this increase had had a hugely upsetting effect on investors.

“This high land leasing tax has halted investors in their tracks, especially those involved in tourism,” Diep said at a meeting between the local authorities and more than 300 investors held in Ba Ria – Vung Tau last week. For projects like Saigon Atlantis and Dragon Sea, the tax increase is ten times what was previously agreed upon, Diep confirmed.

“This tax increase is causing projects to have been delayed for many years,” Diep explained.

The $902 million Dragon Sea International Convention and Tourism Resort project in the Chi Linh - Cua Lap area of Ba Ria - Vung Tau city has been licensed since 2010, but so far no construction has taken place. Diep said that on 45 hectares of land, the total land leasing tax for 50 years was around VND326 billion ($15 million), as calculated in January 2010. In 2012, the local Financial Department announced that this taxation had increased to more than VND1.7 trillion ($79 million).

“This increase is incredibly high. It confuses the investor and causes the project to shut down,” Diep told VIR.

The $4.1 billion Saigon Atlantis project, a multi-functional complex of villas, high-end apartments, and a hotel, is facing the same situation. In 2008, after being given its investment certificate, Winvest Investment Vietnam, the investor in Saigon Atlantis, advanced VND98 billion ($4.5 billion) in land leasing tax to local authorities for land clearance and compensation.

However, by 2012, only 87 hectares out of the total 297 had been handed over to the investor. The land leasing tax was calculated according to the current rate, meaning that Winvest was ordered to pay an additional VND800 billion ($36.3 million) for the 87ha that had been cleared.

“This risk is too high for investors and they can not be expected to cope with it,” he said.

Winvest has suggested many times to Ba Ria - Vung Tau officials to apply the tax quoted during 2007-2008 when the project was initiated, however the local authorities claimed that the adjustment of land leasing tax is decided by the government, not by the provincial authorities.n

According to Taxation Department, the increase in tax was caused by the implementation of decree 121/2010/ND-CP, dated December 30, 2010, replacing decree 142/20015/ND-CP from November 14, 2005, which stipulated that local authorities would decide the leasing tax for trading and services centres and residential development projects that have high return potential.

However, Decree 121 stipulates that the leasing tax imposed by local authorities must not exceed more than twice the leasing guidelines regulated by the government.

“When choosing to invest in Vietnam, foreign investors believe in the country’s socio-economic stability and its reliable policies, therefore the increase of the land leasing tax by more than four times in two years is shocking, and they do not know how to proceed,” Diep said.

He added that the Vietnamese authorities must clearly define differences between tourism and commercial housing projects when imposing land leasing taxation.

Diep suggested that for tourism projects the updated leasing taxation should be imposed on construction land only. The perimeter of the construction area would be exempt from taxation, or be calculated as agricultural land.

“This method would be a feasible solution for investors and would encourage them to continue their projects,” Diep said.