Housing tax in Vietnam is very low
Recently, the Ministry of Finance (MoF) has completed a report on tax policies on real estate, which includes a tax on the second house. According to the MoF, property tax policies have not fulfilled its function as one of the stable revenue sources for the State budget. Therefore, the MoF said it was necessary to enact a specific property tax law which might help promote the efficient use and management of land and prevent real estate speculation.
On this issue, TheLEADER had a talk with Prof. Dang Hung Vo, former Deputy Minister of Natural Resources and Environment.
The MoF is said to be planning to adopt a direct property tax on those owning large assets. Accordingly, those owning two houses or more will be taxed on the second house. What do you think?
In fact, the direct taxation on valuables like land and houses is not a new topic. More than five years ago, this was proposed as Housing Tax, which was included in the Housing Tax Law. However, the proposal was not approved by the National Assembly.
In the end of 2009, during the drafting of the previous Housing Tax Law, the Committee on Financial and Budgetary Affairs of Vietnam National Assembly consented to not taxing housing yet as there was still a contradiction in the public opinion.
Currently, the taxation on the second house has been put into operation, but the tax rate is still very low. There are only regulations on land tax but not on houses. Therefore, the MoF wants to levy on housing in order to raise the tax rate. In my opinion, this is going to create a positive impact on the development of society in the future.
Could you please elaborate on what effects the increase in land tax rates in the future will bring?
Currently, Vietnam is taxing very low on real estate while other countries do not. Normally, other countries levy about 1% of the total value of land and houses at the market price. In Vietnam, only 0.03% of the value of land, not including housing, is taxed.
In my opinion, this level of taxation is too low compared to other countries in the world, which leads to numerous consequences. First and foremost, it is not enough for the State to cover the cost of urban public services.
This leads to the budget deficit, the shortage of revenue for the budget and an increase in public debt. The State still has to use its budget and official development assistance (ODA), not the tax revenue from the people, to pay for these expenditures.
On the other hand, the State and authorities are putting a great deal of effort into managing the migration trend from other provinces to Hanoi, especially allocating the population in Hanoi Old Town and the central area of the city. The underlying reason is that the living conditions in Hanoi are much better in other provinces, while the people do not have to spend much on their costs of living.
Therefore, in my opinion, the tax increase in housing will create a positive impact on society.
“An economy with low real estate prices will guarantee sustainable economic development”
What are the real impacts on the real estate market in your opinion?
There is a fact in the real estate market: high taxes means low prices and vice versa. The reality is that the price and tax trend of real estate in Vietnam is now completely opposite to one of the United States.
In the US, with just US$100,000 to US$500,000, people can afford to buy high-quality property. Even US officials stay in houses that cost only about US$2 million. Meanwhile, in Vietnam, US$2 million is not enough for a villa in Hanoi Old Town.
Why does such a thing occur? It is because in the US, before buying a house, people will have to consider whether they can pay taxes afterwards, or how profitable the purchase can be. Therefore, real estate properties are not considered as a safe method of saving money anymore.
These thoughts have limited the demand for real estate properties and that lowers the prices. An economy with low real estate prices will guarantee sustainable economic development.
Do you think that high taxes can limit the development of the real estate market?
High taxes on real estate and taxing on the second and third houses can prevent real estate speculation and even money laundering. In addition, people should not put their money into real estate as money should be invested and rotated to promote the development of the society.
It is said that this tax can only lie on paper because it is very difficult to operate. If implemented, it may trigger negative trends such as trying to avoid taxes. What do you think about this?
Of course, when a new law is discussed and even when being put into practice, it will certainly receive a lot of feedbacks from the public opinion. In my opinion, this is reasonable and necessary for the development of the real estate market in particular and the whole society in general.
