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Property tax to cost each household VND1.3 million: experts
The Saigon Times Daily
Thursday,  Dec 13, 2018,17:37 (GMT+7)

Property tax to cost each household VND1.3 million: experts

The Saigon Times Daily

The Saigon River of HCMC is lined with newly constructed residential and office buildings. The Ministry of Finance has recently proposed a tax on houses based on their construction value, as part of a draft Law on Property Tax – PHOTO: THANH HOA

HCMC – Each household may have to bear an extra VND1.3 million (US$56) in tax per year if the proposed property tax on houses and land is passed as per a draft law prepared by the Finance Ministry, heard experts at a workshop in Hanoi City on December 12.

The workshop on impacts of the property tax was held by the Vietnam Institute for Economic and Policy Research (VEPR) and Oxfam in Vietnam, reported the Vietnam News Agency.

Earlier, the Ministry of Finance proposed a tax on houses based on their construction value, as part of the draft Law on Property Tax.

Under the proposed law, there would be two value-based options for collecting the tax: a housing value of more than VND700 million (US$30,000) or VND1 billion (US$43,000).

The proposed annual tax is 0.3% or 0.4% of the remaining value above the threshold of VND700 million or VND1 billion.

Addressing the workshop, VEPR President Nguyen Duc Thanh said that his institute and a group of experts have estimated the impact of this kind of tax. Data was collected from a survey by the General Statistics Office, titled, “the Vietnam Household Living Standards Survey 2016,” covering nearly 9,400 households across the country.

Dr. Nguyen Viet Cuong from the Mekong Development Research Institute said that the research team had assumed tax rates of 0.3% and 0.4% for the thresholds of VND700 million, VND1 billion and VND2 billion, thereby assessing the impact of these rates on the people.

Cuong remarked that the threshold of VND2 billion was not listed in the draft of the ministry, but the current housing prices mostly range from VND1 billion to VND2 billion each and even these houses are likely to cost more than VND2 billion, leading the team to consider this option.

For the threshold of VND700 million, if the tax rate is 0.3%, the tax per household would amount to VND978,000 (or 0.66% of the total income), while reduced expenditure would be VND638,000 (0.27% of total spending). If the tax rate is 0.4%, the tax rate per household would reach VND1.3 million (0.89%), and reduced expenditure would be VND851,000 (0.36%).

For the threshold of VND1 billion, if the tax rate is 0.3%, the tax per household would be VND897,000 (0.61%), and reduced spending would be VND600,000 (0.25%). If the tax rate is 0.4%, the tax payable per household would be VND1.198 million (0.82%), and reduced expenditure would be VND800,000 (0.34%).

With the threshold of VND2 billion, if the tax rate is 0.3%, the tax per household would be VND763,000 (0.53%), and reduced spending would be VND525,000 (0.22%). If the tax rate is 0.4%, the tax payable per household would be VND1.019 million (0.72%), and reduced expenditure would be VND700,000 (0.29%).

He pointed out that the tax rate of 0.3% for the threshold of VND2 billion for housing will have the smallest impact on households.

“The asset tax would lower household disposable income by around 0.9%, with a real expenditure reduction of some 0.7%,” he noted.

He said that none of these options would increase the ratio of poor households because most of these receive support or have low-value assets, so they are less affected.

Meanwhile, VEPR President Thanh said property is being overburdened by a variety of taxes, so applying an annual tax to property is unreasonable and distorts the taxation principle.

Thanh added that this law was proposed in the context of not having a complete database on the distribution of assets in society, so this would be the reference function for calculating the most appropriate tax rate.

He stated that if property taxes are issued with tax thresholds, as mentioned in the proposed law, household incomes and expenditures would fall. However, it does not affect poor households and primarily reduces incomes of rich households. Thus, the inequality index could improve, mainly because the rich would become less rich, not because the poor would be better off.

“So property tax is not a sustainable tax if public spending does not promote social well-being and productivity,” Thanh remarked.

When a new tax law is issued, the important issue is to guarantee transparency and explain budget disbursements at all levels, according to the institute’s president.

“Revenue increases are used to meet expenditure needs, but how are such expenditures made? Residents need to be well aware of the effectiveness of these expenditures,” he said, stressing that budget improvements must originate from spending cuts rather than revenue hikes.

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