Since the renovation period, the first legal framework for real estate tax was the land tax ordinance passed by the National Assembly Standing Committee in July 1992, in which tax rates were based on the table of agricultural land use taxes.

According to the agricultural land use tax, the highest tax rate is 650kg of rice per one hectare of land. Therefore, the land tax at the most expensive places in Vietnam is only worth 16.25 quintals of paddy on one hectare of land. 

Recognizing that these tax rates are unreasonable, the National Assembly Standing Committee passed an amended Ordinance on the land tax in May 1994 but, fundamentally, the tax rates are still based on the agricultural land use tax.

Continuing innovation, the XII National Assembly passed the Law on Non-agricultural Land Use Tax in June 2010, which took effect from January 2012 and replaced the previous Ordinance on Land and Housing Tax. The idea of this tax law is still under old thinking: not taxing housing but only non-agricultural land use with a very low tax rate - 0.03% of the value of land under the State's land price table.

The tax rate is progressive. For a land area that exceeds the limit of no less than 3 times, the tax rate is 0.07%. It is 0.15% for a land area that exceeds the limit over three times and if the land is used for wrong purposes or is not being used and 0.2% for appropriated land. In terms of the taxation method, the non-agricultural land use tax is more progressive as the tax rate is calculated based on the value of land.

In terms of tax value, tax revenue is just double the tax rates set by the previous Ordinance, so the revenue is not much in terms of value. For example, a land plot of 100m2 on a position where the price is about VND30 million($1,500)/sq.m according to the state land price table (equivalent to about VND100 million of 1m2 at market price), the owner has to pay only VND1 million per year, an insignificant value relative to income as well as cost of living in the big cities of Vietnam.

International experience

Most countries, including developed countries, developing countries or countries with economies in transformation, impose taxes on real estate assets, including land and assets attached. Tax rate is from 1% to 1.5% of the value of real estate properties at market prices. Many countries also impose a progressive tax on excess real estate that is more than the average rate in society.

The idea of such taxes is that it is not levied on housing but the location of the house, where the owners enjoy a favorable infrastructure and public utilities from public investment. In other words, beneficiaries of infrastructure and public utilities must pay commensurate taxes through real estate tax. In other countries, real estate tax may be enough to cover expenses for urban upgrading, and technological and infrastructure development.

Dang Hung Vo