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The property tax rate may be 0.3% or 0.4%. Photo: Thu Hien.

Tax on the value of properties

First of all, it is necessary to affirm that the proposal to develop the Law on Property Tax arises from the objective of institutionalizing the views and guidelines of the Party and the State on continuing to elaborate and perfect the financial policy on properties and to restructure State budget revenues; to reform the tax policy system, contributing to the building of a comprehensive tax system covering the revenue sources, creating financial resources for socio-economic development. It is also in line with international practices and international economic integration.

According to the draft resolution released by the Ministry of Finance, there are 3 objects targeted as follows: land, houses and cars, aircraft and yachts.

For land, the draft Law stipulates that taxable objects are residential land in both rural and urban areas; non-agricultural land and business land. The draft Law also specifies objects subject to property tax in the current Law on non-agricultural land tax, to ensure compliance with international practices. It is also being reviewed to match the land classification in Land Law 2013. The taxable price for land is determined by the price of 1m² of taxable land. The price of 1m² of land is being calculated by the agency draft according to land price list published by the provincial People's Committee at the time of tax calculation. The use of land price in localities is currently being proposed by the Ministry of Finance is due to the simple, feasible and convenient way for taxpayers to declare tax; creating favourable conditions for the Tax office to determine the tax calculation price and especially suitable to the situation in Vietnam.

For housing, the Ministry of Finance gave 2 options: tax on housing, commercial and service houses, buildings, or only tax on housing. To be in line with the regulations on tax calculation prices for land, the tax calculation prices of taxable houses shall be determined equal to the area of tax calculation houses multiplied by the price of 1 m². Specifically, for a new house, the tax price of 1m² is the 1m² price of a new building at each level, with the grade of house decided by the provincial People's Committee. With used houses, the price of 1m² of taxable house is equal to the price of 1m² at each level decided by the provincial People's Committee multiplied by the percentage (%) of the quality of the house issued by the provincial People's Committee at the time of tax calculation.

For airplanes, yachts, and cars, there is a consideration between taxation and non-taxation. If tax is applied, the Ministry of Finance shall propose the application of aircraft, yachts and automobiles valued at VND 1.5 billion or more and the tax calculation prices are similar to those for houses.

Regarding the tax rate, the Ministry of Finance also proposed two options on the tax rate of 0.3% or 0.4% for all 3 taxable objects.

Develop based on international experience

Explaining the basis for proposing the above regulations, Mr. Pham Dinh Thi, Director of Tax Policy Department, under the Ministry of Finance said: International experience shows that property taxes (annual taxes) in other countries play an important role in total State budget revenues, accounting for an average of 3-4% of total tax revenues in developed countries, up to 8% in Japan. In developing countries, this rate is lower. In the period 2005-2013, the rate of property tax in relation to GDP in developed countries and some developing countries in Asia was about 2% of GDP.

For example, in South Korea, 0.2% to 0.5% for land (4% for golf course and land for construction of luxury resorts); from 0.1% to 0.4% for housing (0.4% for villa); 0.4% for golf homes and luxury services; 0.5% for residential buildings (new plants are built in areas with high population density of 250%); 0.25% for other purpose buildings. In addition to property taxes, Korea also levies property taxes ranging from 0.5% to 2% on land that exceeds thresholds.

In Taiwan (China), the tax rate varies from 0.2% to 5% depending on the type of land; from 1.2% to 2% for condominiums; 3% to 5% for houses and buildings for commercial purposes. In Singapore, rates range from 4% to 16%, according to the value of houses and land that exceeds the threshold (in which commercial, industrial and land tenants are 10% below the threshold). Philippines accounts for 2% in Manila, 1% in other provinces for housing, business, residential land, construction land. In Japan, the tax rate is from 1.4% to 2.1% for houses and land; 1.2% to 2% in Finland. In Indonesia, the tax rate is 0.5% for houses with land worth over Rp 8,000,000; the tax rate is 0.5% to 3% in Switzerland; 1.5% in Hungary; 0.3% to 0.8%. in Greece. Cambodia provides a 0.1% real estate tax on land, housing and buildings on land valued at more than KhP 100 million in some cities. Brunei does not levy tax on land, only tax on houses (including commercial houses) at the rate of 12% of the value of the lease.

In addition to setting the property tax rate in the law, some countries also assign local Governments to set specific property tax rates for use in their localities to suit the local situation, such as France, Japan, Switzerland, Canada, China; Taiwan (China) and Finland.

For houses and unused land, some countries impose higher tax rates or apply additional tax rates to unused land, such as Singapore, which is subject to a tax rate of between 10% and 20%. The UK levies a 50% increase in the basic tax rate if the land is vacant for 2 years or more; Canada levies 1% on property if the house is unused for more than 6 months; Australia is subject to an additional tax rate of 1%; Laos has applied the additional tax rate of 2%.

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After publicizing this draft for public comment, the Ministry of Finance shall receive and complete the evaluation and submit it to the Ministry of Justice for examination and submission to the Government and the National Assembly for incorporation into the law-making program in the coming time. If approved, the finalization of the draft and impact calculations will be studied in more detail. As expected, if the Law on Property Tax is issued, the authorities will abolish the Law on non-agricultural land tax, and the Law on the use of agricultural land.