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Low land taxes in Vietnam prompt rich to hoard money in houses

A house with a floor area of 100 square meters on Dong Khoi street in District 1 of HCMC has a market price of VND1 billion per square meter.

Meanwhile, the land user only has to pay VND5.82 million every year.

Under the non-agricultural land use tax law, which took effect on January 1, 2012, non-agricultural land, including housing land in urban areas, is subject to tax. The tax rate is 0.03 percent of the land price set by local authorities, applied to the land area within the limits.

Meanwhile, the 0.07 percent tax rate is applied to an excessive area which is no more than three times higher than the limit, and a tax rate of 0.15 percent is applied to an excessive area more than three times bigger than the limit.

The land price set by local authorities, or the taxable price, is equal to 30-40 percent of the market price.

Therefore, the tax that landlords pay to the state budget is modest. An MOF report said that the source of revenue from land use tax just amounts to 0.03 percent of GDP and 0.15 percent of the state budget’s total receipts.

A house covering an area of 100 square meters on Dong Khoi street, for example, has the land price set by local authorities at VND194 million per square meter though the market price is VND1 billion.

As such, the taxable value of the land would be VND194 million x 100 square meters, or VND19.4 billion, and the tax the landlord has to pay would be VND19.4 billion x 0.03%, or VND5.82 million a year.

MOF is attempting to impose this kind of tax in the future, saying that the tax is being applied in many countries. Asset tax collection brings 2 percent of total revenue of the state budget from tax collection in OECD countries, 4 percent in Canada and 1-3 percent in the US. In other developing countries, the figure is 0.6 percent.

The ministry emphasizes that it is necessary to impose a property tax in order to create a stable source of revenue for the state budget.

According to HoREA, the land use right fees account for a large proportion in housing costs – 10 percent of apartment costs, 30 percent of houses and 50 percent of villas.

Therefore, it would be unreasonable if MOF imposes a property tax but doesn’t amend the policy on land-use right fees.

The association has proposed replacing the ‘land-use right fee’ with ‘land use right tax’ with the fixed tax rates, suggested at 10-15 percent of the land price set by the local authorities.


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