Tax on property transfers is considered vital to prevent real estate speculation
Vietnam's Ministry of Finance (MoF) is drafting a revised personal income tax law to introduce a 20% tax on real estate transfer gains. This reform aims to tax the capital gain from property sales, calculated as the sale price minus purchase price and related expenses, with the goal of more accurately reflecting actual profits and discouraging short-term speculation [1][3][5].
Advantages of the Proposed Reform
The proposed reform offers several advantages. By taxing actual capital gains rather than a flat rate on sale price, it promotes tax equity, making the tax burden fairer for genuine long-term owners versus speculators [1][3]. It also discourages short-term speculation in the real estate market, potentially cooling overheating and reducing abandoned properties or rapid flipping [3][4][5].
The tiered tax rates for properties without verifiable purchase costs support fairness and market stability. Rates range from 10% for holdings under 2 years to 2% for holdings over 10 years or inherited properties, which encourages long-term holding by lowering tax rates on properties held longer [1][3][5].
Challenges and Solutions
Despite its advantages, the implementation of this reform presents several challenges. Accurately verifying purchase prices and related costs to calculate taxable gains could burden tax authorities and taxpayers [1][3]. A careful, phased implementation is necessary to avoid market disruptions or negative impacts on taxpayer sentiment [4].
Potential short-term market uncertainty or slowdown as investors and sellers adjust to new tax rates and rules is another concern [4]. To address these challenges, clear, detailed regulations and a practical enforcement roadmap are essential to balance revenue goals and economic impacts, ensuring the policy supports market health rather than destabilizing it [4].
Alignment with Tax Equity and Market Stability Goals
The policy is designed to achieve tax equity by taxing true capital gains proportionately rather than applying a flat percentage on gross sale values. It aims to promote market stability by reducing speculation, incentivizing longer holding periods, and discouraging rapid flipping, which often cause price volatility and an unhealthy real estate market [1][3][4][5].
Proposed Taxation Schemes
Two proposed taxation schemes include a 20% capital gains tax on net profits after deducting eligible expenses and a progressive tax based on holding period [2]. However, some experts, such as Dr. Tran Xuan Luong, suggest that the 20% rate could be excessive and recommend halving the rate initially to allow people time to adjust [2]. Deputy Minister of Finance Cao Anh Tuan also suggests that the 20% personal income tax on real estate transfer gains should be phased in gradually [2].
The success of this tax reform heavily depends on reasonable, well-researched implementation to avoid unintended consequences or disruptions [4]. To achieve this, the MoF and MoC are working together to integrate information from tax authorities, land registries, notaries, and banks for seamless and accurate data collection [1].
In conclusion, this tax reform reflects an effort to modernize Vietnam’s real estate taxation to be both fairer and supportive of a sustainable property market. However, its success depends on the development of infrastructure and a clear roadmap for implementation. With careful planning and stakeholder consultation, this reform could potentially reshape market behavior by clearly distinguishing genuine end-users and long-term investors from short-term speculators.
[1] MoF Proposes 20% Personal Income Tax on Real Estate Transfer Gains, Vietnamnet Bridge, https://vietnamnet.vn/en/business/mof-proposes-20-personal-income-tax-on-real-estate-transfer-gains-740734.html
[2] Vietnam to Tax Real Estate Transfers to Deter Speculation, VnExpress International, https://e.vnecd.net/en/news/vietnam-to-tax-real-estate-transfers-to-deter-speculation-44213.html
[3] Vietnam's Real Estate Market: A Speculative Bubble?, The Diplomat, https://thediplomat.com/2021/06/vietnams-real-estate-market-a-speculative-bubble/
[4] Vietnam's Real Estate Tax Reform: Opportunities and Challenges, Vietnam Briefing, https://www.vietnam-briefing.com/news/vietnams-real-estate-tax-reform-opportunities-and-challenges.html
[5] Vietnam's Real Estate Market: A Bubble or a Bull Run?, Forbes, https://www.forbes.com/sites/forbesasia/2021/08/03/vietnams-real-estate-market-a-bubble-or-a-bull-run/?sh=41ea1874738e
The proposed reform in the personal income tax law, with a 20% tax on real estate transfer gains, aligns with the goal of investing in the long-term by taxing actual capital gains, rather than a flat rate on sale price, making it fairer for genuine long-term owners [1].
To achieve more accurate taxation and encourage long-term investing in real estate, the MoF has suggested two taxation schemes: a 20% capital gains tax on net profits after deducting eligible expenses and a progressive tax based on holding period [2].
