The Hanoitimes - Transparency and clarity in budget spending are decisive factors to gain support from the public for the new tax law, which is complicated in nature and difficult to collect.
The draft property tax law proposed by the Ministry of Finance (MoF) is not new, as it has been partly mentioned under the forms of land use taxes, so experts said that a clear explanation of the law is required for smooth implementation and avoid controversy.
According to the draft law, the MoF proposed a tax rate of 0.4% on a real estate product worth over VND700 million (US$30,800), while personal vehicles, such as planes, yachts and cars worth more than VND1.5 billion (US$65,000) will also be taxable.
Overview of the conference. Source: Ngoc Thuy.
“Property tax is a vague name,” said Vu Sy Cuong from the Academy of Finance at a conference discussing the law held by Vietnam Institute for Economic and Policy Research (VEPR) on December 12.
“Most countries in the world do not have property tax, but specifying it as fixed asset tax in Japan, net wealth tax in the Philippines, others call it housing tax, or land tax, even “property tax” would have a broader meaning than a common understanding of tax on real estate,” Cuong added.
Cuong said the contribution of these kinds of tax to the GDP of OECD countries averages 2.12%, while those in developing and in transformation economies are 0.6% and 0.68%, respectively.
In other countries, property tax makes up a significant part for local governments budget, accounting for 80% in Thailand, 36% in Chile and 40% in Poland. The revenue would later be financed for public services where the tax payers live.
The law, thus will enhance local government's authority and independency, in turn, improving quality of public services and creating a transparent real estate market.
Additionally, it has proven its economic efficiency through international experience and played a major part in redistributing wealth among socioeconomic classes.
However, in Vietnam, tax on non-agricultural land use right contributes 0.03 – 0.06% of GDP annually, significantly lower than that of other countries. Moreover, the tax proves insignificant to the budget of local provinces and cities, reaching 5 – 7%, or even 2% in some cases, he continued.
“This is why the MoF is drafting the new property tax law,” Cuong said.
Nevertheless, transparency and clarity in spending the budget are decisive factors to gain support from the public for the new tax law, which is complicated in nature and difficult to collect, Cuong stressed.
Nguyen Duc Thanh, VEPR’s director, said the current draft law of the property tax would reduce disposable income of households, but may not ensure greater equality in society.
“The law would shrink the rich’s income and not improve the poor’s living standard,” Thanh added.
Thanh said a better way to balance the state budget would be more efficiency in spending, instead of increasing tax collection.