Many solutions on tax-loss prevention of real estate tax transactions

illustration image. Source: Internet

Real estate transactions must go through a bank

In the project "Strengthening tax management and combating tax loss for real estate business", the General Department of Taxation has proposed a measure that payment is made via banks and not in cash in real estate activities. This measure aims to control cash flow in real estate transactions, serves as a basis for tax calculation, prevents loss of revenue, and ensures safety and transparency for both buyers and sellers.

Mr. Le Hoang Chau, Chairman of Ho Chi Minh City Real Estate Association (HoREA), agreed with this proposal of the General Department of Taxation. He believed that, currently, Vietnam’s real estate market still has the habit of paying in cash (gold, foreign currency) but has placed value on payment via banks, so transparency cannot be ensured, even in some cases the purchase and sale price and rental price stated in the contract are lower than the actual transaction price.

Thus, it has not ensured the legitimate interests of the parties when there is a dispute, or it may cause loss of state revenue and has not contributed to the prevention and combat of money laundering in the real estate sector.

Meanwhile, the current Law on Real Estate Business 2014 does not stipulate that payments in real estate transactions must go through banks in order to increase the transparency of the real estate market, protect legitimate rights and interests of the parties, prevent loss of state revenue and contribute to preventing and combating money laundering in the real estate sector.

Mr. Nguyen Van Dinh, Chairman of the Vietnam Real Estate Brokers Association, said that it was necessary to make payments through banks for real estate transactions. This would help prevent tax loss, fight money laundering, and create transparency for the market. From there, it can also contribute to limiting price inflation and manipulation, causing instability in the real estate market.

At the same time, it is necessary to communicate about the benefits of implementing this solution and apply with relevant regulations.

For example, if applying the option to pay personal income tax when selling real estate at 2% on profit, many people will make payment via banks to have full documents. Because many people still have to sell at a loss for the purchased real estate when necessary, especially apartments. But if they keep forcing them to pay tax at the rate of 2% on the selling price, they will think of a way to declare the selling price at a low price to evade tax. Therefore, the regulations must be considered synchronously so as not to contradict or contribute to the low price declaration, Nguyen Van Dinh said.

Strongly handle violations

In early 2022, Minister of Finance Ho Duc Phoc signed an official document requesting the Ministry of Public Security to direct local police to coordinate with tax departments to strictly handle transactions showing signs of tax evasion.

At the same time, the Ministry of Justice, the People's Committees of provinces and cities are requested to direct the Departments of Justice to closely work with tax departments to request notary offices to guide people, real estate project investors and enterprises operating in real estate, etc. to declare on the notarized contract based on the actual purchase and sale prices, which serve as a basis for tax calculation in accordance with the provisions of the law.

Since then, the situation of declaring lower real estate transfer prices has partly decreased in some localities, especially Ho Chi Minh City. However, there are still many cases where the tax calculation value based on the contract is lower than the actual value in order to avoid taxation.

As recorded in Ho Chi Minh City, the District 10 Tax Branch has discovered many apartment sales with a transfer value of up to VND4 - 5 billion but it declared to pay tax with the value of only one out of five. The District 10 Tax Branch has submitted a request to the police to investigate and clarify the issue.

At the end of 2021, an individual in Da Lat city, Lam Dong province, sold more than 13,000m2 of residential land and land for perennial crops for VND 5 billion. However, after the tax authorities coordinated with the police agency to invite related parties to work and they declared to transfer price up to VND8 billion. For example, in mid-March 2021, the Ba Ria - Vung Tau Provincial Police Department issued a decision to arrest and prosecute Le Anh Duc, Director of Vincomreal Real Estate Trading Service Co., Ltd. He signed a contract to transfer 70 plots of land in Long Dien district for VND700 million/lot, but in the notarized transfer contract, it only recorded VND50 million/lot.

However, according to experts, the State manages based on the Table and the land price bracket, while this price is usually much lower than the market.

There are areas where the market price of land is 50-70% higher in the price bracket. The existence of two systems of land prices at the same time creates opportunities for people to declare low selling prices to avoid tax.

Besides that, the law also stipulates that, for civil transactions, it allow buyers and sellers to negotiate, as long as they are equal to or higher than the level prescribed by the State.

These are "loopholes" that need to be closed in time to avoid tax loss.