Property tax: Tools to fight speculation and social inequality

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Illustrative photo.

Regulation of the behavior

Property tax is a very common tax in countries around the world. The role of property tax is enormous, not only as a revenue source of the budget, but more importantly to regulate the use of social assets, especially quantitative ones.

In the world of taxed property, the most common one is real estate such as land, because it is perceived as finite property. If a group of people possess too much of this source, there is no chance for the weaker people.

Therefore, there is inequality in access to housing, which is a very basic human right. Property tax is intended to regulate that behavior. No one prohibits possession of property, but when owning a lot of property, the owner must pay a high tax to both limit behavior and redistribute income, creating opportunities for the weaker ones.

Thus, it is clear that the very basic aim of property tax is to ensure fairness in society, guaranteeing the fundamental right of all people. This also generates revenues for the budget. With such benefits, property tax is very popular and even high in many developed countries.

Regarding the suitability of this tax for the time being, Assoc. Prof. Hoang Van Cuong, Member of the National Assembly's Finance and Budget Committee and Vice Rector of the National Economics University, said that property taxes had been mentioned for many years.

More recently, the urgency of applying property taxes has become more pronounced as the gap among the rich, the middle-income and the low-income groups in society has become larger. At present, some people have the potentiality to collect assets to occupy, such as land and houses, causing the housing prices to rise, and the poor people are less likely to have access to housing. Therefore, Mr. Cuong did not think that this Law was premature.

If not applied, it will be late, because speculation and inequality are increasing. When the money to speculate not only causes high prices but also makes the capital for production and business decline, detrimental to the performance of the whole economy. Thus, the benefit of anti-speculation is very high, which in anti-speculation, property tax plays a very important role.

In Vietnam, the speculation in real estate has caused a great impact on the economy as well as the rise in real estate prices and bad debts of banks. If we implement a good property tax, it will bring great benefits to society.

Increasing revenues is not the first goal

From the budget perspective, if we apply this tax law, the revenue also increases. But according to Mr. Cuong, collecting property tax to increase the budget revenue is not correct. Taxation is the first tool of the State to regulate social behavior.

For example, the excise tax on luxury goods and non-health goods is to limit consumption. The tax also aims to distribute, regulate income, limit speculative behavior, encourage healthy behaviors, and bring good benefits to society.

"Therefore, it must be seen that the increase in budget is not the first goal of imposing a property tax. It is the responsibility of society to reduce the chances of accessing other people's property, and of course, the State must act as a regulator and use that income to invest back into society", Mr. Cuong emphasized.

Of course, an increase in tax or the application of new tax policies are often difficult due to adverse public opinion. In order to have a broad consensus, the draft Law should emphasize the regulation, and distribution from the wealthy people to the poor.

"Thus, we should design the Law in a way that is less likely to affect the poor or low-income people, and the poor should only pay a small proportion of the tax, and the rich must pay higher with a progressive coefficient", Mr. Cuong said.

In many countries, progressive ratios are up to 10-12%. A progressive mechanism will be more suitable, easier for agreement. The few rich people have higher taxes than many low and middle-income people.

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Under this policy, revenues will also increase because of the fact that the tax from low-income people is not much, the tax levied on the rich with many new assets is significant because the wealth of the rich can be large, even a hundred times the property of the poor. This amount just fulfills the role of regulator and policy effectiveness will then be higher.