Ministry of Finance responds on tax policies relating to real estate

the current system of tax, fee and fee policies for real estate was quite complete. Source: Internet

Facing recent land fever, the Ho Chi Minh City Real Estate Association (HoREA) has recommended that, to reduce house prices, the State needs to change the way of collecting land use fees for commercial housing projects, converting into tax levied on the change of land use from agricultural, non-agricultural land to residential land, with a tax rate probably equal to about 15-20% of the land price in the list of land price. At the same time, to offset the State revenue deficit and create a stable and sustainable source of revenue for the State budget, it is necessary to tax real estate.

Responding to these comments, the Ministry of Finance said the current system of tax, fee and fee policies for real estate was quite complete, including: tax on agricultural land use, tax on non-agricultural land use; income tax on transferring real estate, registration fees and other related fees and charges (such as fees for issuing certificates of land use rights, ownership of houses and other land-attached assets).

The Ministry of Finance said these collection policies have fully covered the process of real estate formation, ownership, use and transfer, gradually being completed, encouraging organisations and individuals to use real estate economically and effectively, limit real estate speculation and wasteful use of land.

To contribute to improving the efficiency of state management on real estate, the study and completion of related tax policies is necessary. However, this is a high-impact field and many technical contents require the participation of many local ministries and sectors. Therefore, it must be studied and evaluated thoroughly before submitting to the authorities for issuance at the appropriate time to ensure feasibility, high consensus, contribute to limiting real estate speculation.

Following the Prime Minister's direction, the Ministry of Finance is studying and synthesising international experiences to identify problems and shortcomings in the implementation of tax regulations related to real estate to report to the Government and submit to the National Assembly at an appropriate time associated with the development and implementation of the strategy on tax system reform in the period of 2021-2030.

Besides that, some stated that, in addition to contributing to the budget, the tax policy must achieve the goal of regulating and orienting consumption and combating speculation. However, with the current revenue method, the tax on transferring real estate has not achieved this target. The nature of tax on transferring real estate was direct collection and receivable on the "land rent difference". This means the profit earned by the investor. However, at present, the collection of the tax authority was "flat tax". For every 2% of transfer price, any profit or loss must pay tax. This method of collection was easy for tax authorities but it distorted policies.

On this issue, the Ministry of Finance said that in the past, the Law on Personal Income Tax No. 04/2007/QH12 stipulating individuals earning income from transferring real estate must pay tax at the rate of 25% on income (transfer price minus purchase price and related expenses). If the purchase price and related expenses cannot be determined, the tax shall be paid at the rate of 2% on the transfer price.

However, actual implementation has encountered many problems such as having no basis to determine the purchase price and related costs of transferring real estate activities, especially for long-established real estate lacking documents or grounds to prove the cost, real estate was given, donated or inherited; transferring between individuals in cash are tough to control; there were cases where the tax was paid at the rate of 2%, then re-declare the tax adjustment at the rate of 25% for tax refund or the tax authority requests the individual to re-declare at the 25% tax rate to collect tax, causing a complaint.

From January 1, 2015, Law No. 71/2014/QH13 amending and supplementing articles in laws on tax stipulating that individuals transferring real estate must pay 2% of tax on real estate transfer prices. The provision of a tax calculation method ensures transparency in policy and avoids problems in implementation as well as reforms administrative procedures.

Particularly for firms engaged in transferring real estate, the prime cost of real estate should be determined based on the enterprise's accounting books. The Law on Corporate Income Tax stipulates that businesses earning income from transferring real estate pay tax at a rate of 20% on their incomes. Taxable income from transferring real estate is determined by revenue collecting from transferring real estate minus the cost of real estate and deductible expenses related to transferring real estate.