Property Tax: Household expenditure will only decrease by an average of 850,000 VND per year

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According to the plan in the Draft Law on Property Tax, with the taxable threshold of over VND 700 million, 77.8% of households have to pay land tax and 8% of households have to pay house tax. Photo: Nguyen Hien.

There will be no impact on poor households

At the Seminar on the applicability and impact of property tax in Vietnam held on December 12, 2018, PhD. Nguyen Viet Cuong, Deputy Director of Institute for Public Policy and Management, National Economics University, gave results of the study on calculation of the impact of property tax levy proposed by the Ministry of Finance based on the Vietnam Household Living Standards Survey in 2016 by the General Statistics Office for 9,399 households nationwide.

The survey showed that according to the draft Law on property tax proposed by the Ministry of Finance, with the taxable threshold of over VND 700 million, 77.8% of households must pay land tax and 8% of households must pay house tax. If the taxable threshold is VND 1 billion, 77.8% of households must pay land tax and households paying house tax reduces to 4.3%. Meanwhile, if the taxable threshold is VND 2 billion, the proportion of households paying house tax is only 0.4%. This accounts for a very small proportion and only concentrates in large cities.

Regarding the amount of tax payable, with the plan proposed by the Ministry of Finance (the tax rate of 0.4%, the taxable threshold of VND 700 million), each household must pay more than VND 1.3 million per year on average, including VND 325,000 housing tax and 978,000 land tax. With this plan, the budget shall collect nearly VND 30,000 billion.

With a taxable threshold of VND 1 billion, each household will pay a property tax of VND 1.2 million per year on average (218,000 house tax and 978,000 land tax).

Whilst with the taxable threshold of VND 2 billion, each household has to pay more than VND 1 million property taxes on average ( 978,000 land tax and only VND 39,000 house tax).

According to the survey team’s calculations, the levy of property tax will affect household expenditures. In particular, with the plan proposed by the Ministry of Finance, household expenditure will fall by an average of VND 850,000 / household / year. With the threshold of VND 1 billion, the expenditure will fall about VND 800,000/ household / year. With the threshold of VND 2 billion, the expenditure will fall an average of VND 700,000 / household / year.

The levy of property tax does not affect poor households because the poor or near poor households are exempted from tax or have small properties and are not subject to tax. PhD. Nguyen Viet Cuong proposed taxable house threshold of VND 2 billion. Or if the threshold reduces to VND 1 billion, it is a reasonable plan which ensures both tax collection and has less impact than the plan issued by the Ministry of Finance.

Important revenue in the locality

At the seminar, Assoc. Prof. Dr. Nguyen Duc Thanh, Director of the Vietnam Institute for Economic and Policy Research (VEPR), said that actually, there are some taxes by nature relate to property tax that is land tax. Thus, Mr. Thanh said that the design of the tax law relating to property needs to have a clearly defined purpose.

According to VEPR’s Director, international experience shows that there are 51 countries in the world collecting property tax from real estate. In reality, however, real estate tax does not benefit much to the country and contributes an average of 2.12% to GDP of OECD countries and 0.6% to GDP for developing countries and 0.68% to GDP of the countries in economic conversion, and an average of 1.04% to GDP for all countries.

Therefore, many countries define property tax as local tax and the local authority has certain powers to set the tax rate. This is also an important revenue source in the locality, which helps improve public expenditure in the locality. In Thailand, for example, real estate tax account for 80% of local revenue, 36% in Chile, 40% in Poland.

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According to Thanh, to calculate the value of real estate assets to levy reasonable tax rates for that asset to owners, it requires data provided by the local authority. If local budget is not transparent and revenue from real estate tax is not used to improve the local infrastructure and local security, it will cause public discontent.