New tax put forth to restrain speculation
Hanoi and Ho Chi Minh City are proposing a series of solutions to impose extra tax after a recent request from the prime minister to readjust the real estate market to limit investment flows into unused property from speculation.
|The new tax proposed by Hanoi Tax Department would encourage owners to finish their buildings. VIR Photo: Le Toan|
Hanoi Tax Department this month proposed to subject a 5 per cent tax on the contract value for villas that have been abandoned for at least three months and a 10 per cent tax for those abandoned for one year or more.
It also proposed fining investors to VND10-20 million ($430-870) per villa and imposing a progressive tax system has been suggested for those households that buy more than one property.
Some owners of unused villas and houses claim that they are having difficulties in financing in order to finish the properties, and that more taxes will simply add to their woes.
However, it is uncertain how many of these cases exist, as current prices mean only well-off people can afford to buy a land plot in Vietnam in the first place. In many cases, the owners buy the land plots and wait for prices to increase before transferring it for profit.
Pham Manh Hung, director of Minh Viet Property, said that the proposal to impose a tax on unused villas will confuse many people because the tax has not yet been integrated into the current legal framework.
The tax, Hung added, could violate owners’ rights because according to the Civil Code, people have a right to their assets, and could be fined if they break the law if, for example, they build a house without permission or violate construction regulations.
“They have a right not to finish their house and leave it unused, if the legal system has not got specific regulations on that,” Hung said.
In Vietnam, property is frequently viewed as a store of value. Therefore, an unused house is not necessarily for speculation purposes, it could be part of the owners’ savings, according to Hung.
One property owner, Nguyen Minh Nguyet, said that so far the authorities have yet to clearly define what constitutes abandonment of such villas. “I really do not know how this tax can be collected if the owner is in financial difficulties and cannot finish their property,” Nguyet said.
However Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, said imposing the tax is a crucial solution for limiting speculation. “Many other countries are applying a high tax on real estate – the more unused the property, the more heavily taxed. This can limit speculators who can drive up house prices sharply leaving the end-users unable to ever afford accommodation.”
Nguyen Van Dinh, deputy chairman of the Vietnam Real Estate Realtors, claimed that unused houses are wasting society’s resources and the situation must be solved.
Dinh said apart from imposing an extra tax on owners of unused homes, project developers must also suffer from additional taxes if they cannot install enough facilities to attract residents to live.
“In many projects, residents cannot move in because the supportive facilities have not been installed yet. They cannot live in a project without a supermarket, kindergarten, healthcare centre, and so on,” Dinh said.
Many unused villas and houses are today reported in other cities and provinces such as Binh Duong and Dong Nai, in projects where supportive facilities are not yet built.
The Ministry of Finance issued Circular No.40/2021/TT-BTC earlier this month, providing guidelines on VAT, personal income tax (PIT), and tax administration for business households and individuals.
Taking effect from August 1, Circular 40 stipulates that leasing certain properties shall be applied a tax rate of 10 per cent at most, including VAT and PIT at 5 per cent each. This tax is imposed for owners with revenues from VND100 million ($4,300) per year at least, and the tax is applied for lease terms of below 12 months.
Kevin Hawkins, partner at legal group DFDL, told VIR that the rental tax threshold may be low compared with average annual rents but the actual tax is low compared to how such income would be calculated in the US, for example.
“There may be some exceptions for income derived from retirement accounts and gift income, inheritance, and medical reimbursement but these exceptions are limited and would need to be declared in the income tax filing,” he said.
Hanoi has proposed to the Ministry of Finance the imposition of a tax or fine on owners of half-finished and abandoned townhouses and villas which were causing considerable waste of land resources.
The real estate market remains feverish not because of high demand and short supply, but because of speculation, experts have said.