VietNamNet Bridge - Real estate is the most easily taxed and transparent asset because no one can hide or put it in a safe box. To apply this tax, it requires management coordination between the tax authorities, the land registration agency and local authorities.

The Finance Ministry's proposal to collect tax on second homes and more is a reasonable proposal, but it is insufficient, as it only aims at preventing housing speculation and increasing budget revenue. In fact, Vietnam needs a major reform of the tax system in general and the real estate tax in particular, especially in the period of international economic integration in depth and the participation on many free trade agreements.

The common concept for property tax reform (including non-agricultural land and assets attached to the land) is raising the tax rate and imposing progressive tax rates on the land area that is higher than the average level of society. We should try to increase the tax rate from 0.03% to 1% similar to other countries. Such tax reform will achieve many goals.

First of all, the people who use the infrastructure and public utilities formed by public investment have to pay to upgrade the urban areas and rural residential areas. Vietnam cannot continue to use budget revenue from other sources or ODA loans to develop infrastructure and public utilities, while the users do not have to pay anything. Let's create a tax regime under which everyone who uses these facilities must pay. Thus Vietnam can solve the budget deficit, lack of tax revenue, high public debt, and large public investments.

In every country there exists the gap between the rich and the poor, and the middle class is always the majority. The tax rate, thus, must match the average income in society.

Secondly, higher taxes will cause prices in the real estate market to reduce gradually, to reach a balance with income and affordability of the people, with higher liquidity. This will overcome the current paradox of the market. One of the important principles in the development of the property market is "high tax - low price and low tax - high price."

For example, in the US, it is easy to buy property as the price is low. With about one to two million US dollars, one can buy a luxury villa, but to keep that real estate it is not easy. Only those who have good jobs and income can keep the property with the value commensurate with his income. By contrast, in Vietnam, buying real estate is difficult because the price is too high, but it is easy to keep the real estate because the tax rate is too low. Low tax - high price is a very unfavorable condition for the development of the property market.

Thirdly, higher real estate tax will accelerate the development of and the effective use of real estate because if people have to pay high taxes, they will have to seek ways to exploit their property at the highest level to pay taxes. Vietnam will no longer have ghost villas and fallow residential areas.

Fourthly, the tax policy itself will coordinate the rational distribution of population in the process of urbanization, preventing overcrowding in large urban areas. Hanoi has a plan to reduce the population in the old quarter. It built the Viet Hung urban area in Gia Lam district but the problem could not be solved. The main reason is that people have a good income from the sidewalk economy in the old quarter. This situation has pushed the land prices in the old quarter to super-unreal high prices.

Higher real estate taxes will make the economic efficiency of the sidewalk economy fall so the people living in the old quarter will consider and decide to move to places with higher incomes. The flow of workers to urban centers will reduce and spread out to other satellite towns with higher income opportunities.

Fifthly, a progressive tax levied on property would reduce speculation as a way to keep money and increase the ability to transfer capital to invest in production and business. 

Sixthly, the property tax will be tied to the process of making real estate open and transparent, and to reduce corruption and money laundering through the real estate market. Some government agencies have launched a number of measures to combat corruption and money laundering through the purchase of real estate such as paying for real estate through banks. But higher property taxes associated with publicity and transparency is more effective.

Critical opinions

There are many critical opinions about this issue as some people do not want to increase property taxes, and do not want taxes on houses, even from the second house onwards. These opinions revolve around the arguments below.

Firstly, housing is a human right recognized by the Constitution and people must have houses so that is why the state taxes houses.

Like the experience of other countries, the State does not tax housing but the use of infrastructure and public utilities through the expression of houses. Housing is where residents live and once they live in an area, they have to use the infrastructure and public utilities around. With better infrastructure and utilities, the real estate prices are higher. Thus the state has to tax on infrastructure to have money to upgrade the settlement space of local people.

Secondly, Vietnamese income is too low, and high taxes on real estate will make it difficult for people's lives.

In every country there exists gap between the rich and the poor, and the middle class is always the majority. The tax rates must match the average income in society. The property tax rate must be suitable to the average income in each period. This tax should be under a duty-free regime for property under a certain value threshold for rural areas, mountainous and poor urban areas. This tax must be directed towards developed urban areas; the main object is average income and higher income earners in urban areas.

Thirdly, high taxes on property can greatly affect real estate market development, curbing investment in this market.

This tax is not levied on the creation of real estate investment. Property taxes are only imposed once the property is completed, even when it has not been put into business. Those who own the property must pay tax. This will enhance the responsibilities of property investors. Effective investment will increase and inefficient investment will decrease.

Fourthly, the real estate tax will be meaningless because officials or property owners can ask others to register the property.

We should not worry about this situation. First of all, this tax is imposed on real estate owned by households and individuals. If an official or businessman asks his wife or children to register his property, it is still his family that has to pay the tax. If they ask their friends or relatives to register the property, they will have to consider very carefully avoiding losing assets. This situation can occur but it will surely reduce in number.

Fifthly, currently information about real estate is not sufficient and the profile of property is very weak so the feasibility of this tax would be very low.

In fact, real estate property is most easily taxed because no one can hide it in his pocket or his safe box. To implement this tax, it requires management coordination between the tax authorities, the land registration agencies and the local government.

Prof. Dang Hung Vo