Levy on houses and lands

Levy on houses and lands should be imposed on speculators

In experts’ opinions, collecting tax on houses and land is not only an economic but also a social issue. When the country’s economy and the citizens’ livelihood have seen little improvement, applying another type of tax may cause negative reactions.

Dr. Tran Du Lich, Deputy Group Leader of HCMC National Assembly Delegation who is also an economic expert, in a talk show regarding “Draft law on house and land tax” held on 19 January at the Southern National Assembly Office, HCMC, asserted that the imposition of tax on houses may not be implemented for the time being, even in 10 more years, since the annual average income of the citizens still remains low at approximately US$1,000. The Government should collect only tax on houses from the business sector to restrict speculation, which has created a “bubble in the real estate market.

Having the same opinion, Dr. Le Net, Founding Partner of LNT & Partners Law Firm, recommended that heavy taxes should be imposed on those who buy and sell houses repeatedly. The closer the period between selling and buying, the higher the tax rate should be. For example, the Government should impose a heavy levy on the first transfer of houses or lands within 1 year (i.e., 50% of the discrepancy between selling and buying prices). The rate will be 30% for the second year’s transaction and will be reduced on a yearly basis.The higher the frequency of house and land trading, the higher the tax rate for this activity

If this succeeds, trading in houses and land in such a “sliding” manner will certainly be decreased. The Government may impose tax on land possession. If a land owner cannot use such land in an effective way, he/she must sell it due to an inability to pay tax imposed on it. If the land owner leases such land, the lessee will pay the relevant tax accordingly.

Ms. Nguyen Thi Tuyet Nhu, Deputy Director of Tan Vu Minh Real Estate Company, said that: levy on houses should not be imposed on those who own only 1 house but on those having 2 or more houses to restrict speculation. Controlling housing areas and valuation for tax calculation is quite complicated. For this reason, it is better to collect taxes on land first, not on houses.

Tax rate should be based on the specific location of each house

According to Dr. Nguyen Thi Thuy, Head of the Department in charge of Law on Finance and Banking of University of Law, Ho Chi Minh City, if a tax on houses is considered a type of tax on property to be collected when the houses are in use, this will be unreasonable. This is because houses for living will depreciate over time and owners will have to spend money on repairing or re-building. To avoid complexities of collecting housing, Ms. Thuy suggested that tax calculation should not be based on housing areas but on particular location of each house.

As for houses in Vietnam in general, especially those in urban areas, the location of a house will decide its value. Therefore, imposing tax on house cannot be “founded on” the house’s size but on the house’s location. For instance, a 100-square meter house on Nguyen Hue Street (District 1, HCMC) may certainly cost a hundred times more compared to one in Binh Chanh District. Moreover, houses in District 1 can make a hundred times more profit than those in Binh Chanh District. For this reason, many experts asserted that the particular location of each house is the main factor to be considered in order for an appropriate tax rate to be applied.

Mr. Trinh Minh Tan, Ho Chi Minh City Bar Association, proposed another solution: tax calculation should be founded on housing size, not on number of houses owned by one person. This is because someone may have only 1 house with an area of up to thousands of square meters while someone may have up to 3 houses with total area of only less than 200 square meters.

In addition, only houses of Levels I and II should be subject to tax, whereas Levels III and IV houses should be entitled to tax exemption (since houses of Levels III and IV have yet been considered standard houses). “Many houses, especially those in urban areas, are used for living and doing business too; therefore, these houses cannot be listed as houses for business because they may be used as a store in the day and a normal house at night,” said Mr. Tan.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com

Is it time to impose a levy on house?

As planned, Law on House and Land Tax will be reviewed and adopted by the National Assembly at its 7th Meeting (held in May 2010) and will be effective from 1 January 2012.

However, according to Head of Economy Committee of the National Assembly, Mr. Ha Van Hien, many delegates of the National Assembly have yet to “agree” on the levy on houses. From Mr. Hien’s explanation, during the construction of a house, construction materials have to be levied, and an amount of money has to be paid for the use of the land; therefore, the levy on houses will lead to an overlap against multiple taxes.

The authorities in charge of drafting and verifying the law in question maintain their viewpoint

Notwithstanding Mr. Hien’s explanation, the National Assembly’s Budget and Finance Committee (the one verifying the draft Law on House and Land Law) and the authority drafting such law maintain their viewpoint that houses should be levied on the reason that imposing a levy on houses will help to enhance management work as well as gradually and reasonably control and regulate payments into the state budget. The collection of taxes on houses also helps to limit speculation in houses, especially condominiums. Since the tax rate proposed in the draft law is not high, and subjects on which the levy will be imposed are narrowed, the majority of citizens have yet been affected by such law. In addition, the application of tax on houses will not result in an overlap among tax types for taxes on houses, and land is considered as a tax on property which is independent from other tax types.

The National Assembly’s Budget and Finance Committee has proposed two solutions: the first solution is only collecting house taxes against second houses or houses thereon owned by the same person at the rate of 0.03%. This solution helps to assure each citizen a house. The second solution is to impose a levy on the first house but the house’s value subject to house tax will be increased up to 1 billion dong instead of 500 million dong as proposed in the draft Law on House and Land Tax submitted to the National Assembly. With this solution and from the calculation of the Minister of the Ministry of Finance, Mr. Vu Van Ninh, the majority of people having houses in rural and urban areas of 400m2 for Level I houses or more or Level II houses will be excluded from paying this tax.

Concerns still remain

Nevertheless, the Standing Deputy Head of the Bar Association of Ha Noi City, Mr. Nguyen Hong Tuyen, following careful review of the 15 articles in this draft law, commented that the drafters have not taken today’s citizens’ living standards and conditions into consideration. One of the purposes of constructing this law is to restrict the speculation in houses and land, yet there are few provisions that “target” speculators as opposed to citizens. Agreeing with this opinion, Dr. Tran Du Lich, Deputy Group Leader of the National Assembly’s delegation of Ho Chi Minh City and economic expert, asserted that imposing tax on houses may not be implemented for the time being – perhaps not even in 10 years’ time – since the annual average income of citizens still stands low at approximately US$1,000.

Following analysis of these two solutions proposed by the National Assembly’s Budget and Finance Committee, Head of the Committee for People’s Aspiration, Mr. Tran The Vuong, still has many concerns. In his opinion, the first solution will soon show its impracticality when some people only own one house but its value is ten times the value of other houses. Regarding the second solution, a housing tax based on house values will lead to many complicated problems. For example, “what will happen if House A is valued at 1 billion dong early that year but its value drops down to 700 million dong later in the same year due to the then frozen real estate market? My concern is that there will be a lot of complaints when this law is applied.”

The National Assembly’s Head of Economy Committee, Mr. Ha Van Hien, expressed: “Our people’s livelihood is still low and officers’ incomes are low too; therefore, it is essential to limit payments…”

In order to reasonably settle the collection of tax on houses and lands, Dr. Le Net, Founding Partner of LNT & Partners Law Firm, recommended that the State should only collect housing tax from the commercial realm to restrict the speculation in houses and lands. Particularly, heavy taxes should be imposed on those who buy and sell houses repeatedly. The closer the period between selling and buying, the higher the tax rate should be. For example, someone owns land and wants to sell it immediately for profit. To limit these types of purely commercial transactions, the State may possibly impose a heavy levy on the first transfer thereof within 1 year (i.e., 50% of the discrepancy between selling and buying prices). The rate shall be 30% for the second year’s transaction and shall be reduced on a yearly basis. If this succeeds, trading in houses and lands in such a “sliding” manner will certainly be decreased. The collection of tax on houses on a large scale from the second house or more should only be carried out in the future when the citizens’ livelihood has been improved. Upon application of the Law on Personal Income Tax (PIT), houses have become a type of property made from the disposable income of each individual after PIT. If any levy is imposed on the only house, “the overlap among tax types” is inevitable. For the collection of tax from the second house or more, however, the houses’ areas should not be used for tax calculation. Instead, such collection should be based on a particular location of each house. This is because for houses in Vietnam in general, especially those in urban areas, the location of a house will decide its value. A 100-square meter house on Hang Dao Street, Hoan Kiem District, Ha Noi will certainly cost approximately similar to ten similar houses in Dong Anh district.

Issues about houses and land as property are sensitive as they directly affect every citizen. Therefore, the application of an additional tax will probably causes disagreements. What is more, it is a proven fact that controlling housing areas and valuation for tax calculation is quite complicated, while conditions for implementing them are not available. For this reason, it is preferable to collect tax on land first, not houses. This also reflects the opinion of the Vice President of Vietnam Fatherland Front Committee of Ha Noi City, Mr. Dang Viet Quan.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com