Ministry of Finance: Full legal basis for developing the Law on Property Tax

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Illustrative photo.

In response to the question "Why is this Tax Law required?", The drafting agency made 3 arguments:

Firstly, institutionalizing the Party's and the State's viewpoints on continuing to elaborate and revise financial policies on assets and restructure State budget revenues.

Resolution No. 19-NQ / TU (Resolution of the Sixth Plenum of the Party Central Committee, XI) on further renovation of land policies and legislation in the period of the renewal process, creating the basis for Vietnam to basically become an industrialized country in the direction of modernity stipulates: "Study and promulgate the tax on real estate (taxable objects must include land, houses and other assets attached to the land)".

Resolution No. 07-NQ / TU of the Politburo on policies and measures to restructure the State budget and public debt management to ensure a safe and sustainable national financial environment has set one of the objectives as follows: "State budget is restructured in the direction of ensuring the national financial security and stability, contributing to macroeconomic stability". At the same time, one of the solutions is to "focus on restructuring revenues; revise the revenue policy in combination with the restructure of State budget revenue in the direction of covering all revenue sources, expanding the collection bases, especially new revenue sources in line with international practices and environmental protection".

The National Assembly's Resolution No. 25/2016 / QH14 on the five-year national financial plan for the period 2016-2020 has set out one of the objectives as follows: "continue to perfect the institutional system and financial mechanism nationally to mobilize, distribute, manage and efficiently use financial resources to meet the country's socio-economic development requirements and objectives; to step by step restructure State budget revenues". At the same time, one of the measures to be taken is "to study the supplementation of property tax in accordance with the actual conditions of Vietnam".

The National Housing Development Strategy to 2020 and vision to 2030 was approved by the Prime Minister in Decision No. 2127 / QD-TTg dated 30 November 2011 stipulates "Revising to adopt financial and land-related tax policies in order to encourage the efficient use thereof and encourage the limitation of speculation in land and housing resources".

The Prime Minister's Decision No. 2174 / QĐ-TTg approving the project on exploiting financial resources from land and State assets for socio-economic development in the period of 2013-2020 regulates to actively study and submit to the National Assembly the promulgation of the Property Tax Law at an appropriate time and property tax subjects must include land and assets attached to land.

The Tax Policy Reform Strategy for 2011-2020 (issued with the Prime Minister's Decision No. 732 / QD-TTg dated 17 May 2011) states: "Study on the tax policy of houses and properties of great value at the right time".

Secondly, implementing the objective of reforming the tax policy system, contributing to the development of a comprehensive tax system, covering revenue sources and creating financial resources for socio-economic development.

International experience shows that property taxes are an early taxation in the tax system of most countries in the world, especially in developed market economies. Currently, 174 out of 193 countries collect property taxes (annual taxes in the process of using the property) with different names. Taxable property in most countries includes land and houses.

Property taxes in other countries represent an important part of total national revenues, accounting for an average of 3-4% of total tax revenues in developed countries, with some countries reaching up to 8% as in Japan. In developing countries, this rate is lower. In the period 2005-2013, the rate of property tax revenues over GDP in developed countries and some developing countries in Asia was about 2% of GDP.

In Vietnam, the current system of taxation, charges and fees related to property has basically covered activities related to the establishment of ownership and use rights; the process of using and transferring assets. Annual taxes levied during land use (agricultural land tax, and non-agricultural land tax) are currently levied on land (residential land, non-agricultural land and agricultural land). The assessment shows that annual taxes in the process of using the property only account for about 0.036% of GDP and just regulates the land.

Thirdly, contributing to State management of property, in accordance with international practices and international economic integration.

International experience shows that countries use property taxes as an effective financial instrument to enhance the management of corporate and individual property use, and at the same time have additional resources to return to land.

In order to strengthen the management of the use of property of organizations and individuals, to make good use of the revenue from property, one of the requirements is to renovate and improve the institution, to timely adjust economic activities in line with the socio-economic development orientation and the international economic integration context, thus facilitating and protecting the national interests in integrating into the international economy.

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Thus, in order to institutionalize the Party's and State's viewpoints and policies on tax policy on assets and carry out the restructuring of state budget revenues; implement the reform of the tax system, contribute to the development of a comprehensive tax policy system in line with international practice, the issue of the Property Tax Law to replace the taxes in the process of using the existing assets is essential.