Under the latest property draft law by the Finance Ministry, a homeowner would have to pay an annual property tax of 0.03 percent based on the assessed value of the house, with a tax-free threshold of VND500 million.

Owners of more than one house would be taxed on the total value of all the houses. Housing area exceeding official quotas, different among cities and provinces, would be taxed higher, at 0.06 percent and 0.09 percent.

There is currently no housing tax in Vietnam.

Speaking at a National Assembly Standing Committee session on Wednesday (16 Sep 2009), Finance Minister Vu Van Ninh said the revised draft law would help curbing property speculation. He said most houses in the countryside as well as homes under 120 square meters in urban areas would not subject to the new tax because their values based on total construction costs would be less than VND500 million.

But Deputy Construction Minister Nguyen Tran Nam said homes should instead be taxed according to the area they are built on. Nam said it would be unfair if houses taking up hundreds of square meters of valuable land were not taxed more than smaller homes.

Difficulties

Economist Nguyen Minh Phong wrote in a note published Thursday that the taxable threshold should be higher because the real market values of houses were higher than the combined construction costs. Phong also said it was unreasonable to fix the taxable threshold while allowing construction costs to vary.

Lawyer Vu Xuan Tien said a real estate ownership tax law was necessary to help curb speculation and increase tax revenue. However it would be difficult to assess the real value of homes as proposed in the draft law. The value depends on many factors, including where the homes is located and its age and amenities, he said.

Tien suggested that the property tax be calculated by multiplying the number of square meters that exceed the housing quota allocated to each household by a fixed amount of money.

Not enough

Dang Hung Vo, a professor at Vietnam National University in Hanoi, said the age of a house and the consumer price index in its locality needed to be taken into consideration when the house is valued.

Vo also said a tax rate of 0.03 percent is not enough to keep property prices from soaring, especially in the centers of large cities where houses are also used for commercial purposes and are already very expensive.

Too low; the buck stops where?

State-owned construction company Vinaconex said in a statement that the 0.03 percent tax was too low, suiting only low-cost houses in big cities like Hanoi and Ho Chi Minh City. In the future, when both consumer prices and incomes surge, the rate would not be enough, he argued.

Vinaconex also pointed out that the draft law does not stipulate which agency would be responsible for assessing the home values. The statement said such a loophole could lead to corruption and tax evasion.

No tax; is it worth it?

While many experts said the proposed taxes were not heavy enough to prevent people from speculating on real estate, others proposed no taxes at all. “It’s alright to tax land use, but I don’t agree on house taxes,” but National Assembly Deputy Chairman Huynh Ngoc Son said. “When residents buy construction materials to build their houses, they have to pay taxes already. It’s unreasonable to impose more taxes.”

Chairman of the National Assembly Budget and Finance Committee Phung Quoc Hien said many localities want the tax law to be delayed because residents are already overburdened with other payments. Hien also said that property taxes could generate around VND1.2 trillion, not enough to finance the tax collecting.

The property tax law is expected to be passed by the National Assembly next year and take effect on January 1, 2011.

Residential land, houses, apartments and land for commercial purposes other than cultivation are currently not subject to property taxes. Under the draft law, residential land would be taxed 0.03, 0.06 and 0.09 percent according to the area.