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Property tax reduces household incomes and expenditures

Update: December, 13/2018 - 08:00
VEPR’s director Nguyễn Đức Thành makes a speech at the conference. — VNA/VNS Photo Văn Giáp
Viet Nam News

HÀ NỘI — Property has been suffering a variety of taxes in the process of formation, meaning applying an annual tax on property is unreasonable and distorting the taxation principle.

That was the statement made by Nguyễn Đức Thành, Director of the Việt Nam Institute for Economic and Policy Research (VEPR), at a conference held in Hà Nội on Wednesday.

The conference announced the result of the study "Applicability and impact of property tax in Việt Nam", implemented by VEPR in co-operation with Dutch NGO Oxfam Việt Nam.

Recently, the Ministry of Finance proposed a tax on houses depending on their construction value as part of a draft law on property tax.

Under the proposed law, there are two options: imposing tax on houses with construction value of either more than VNĐ700 million (US$30,400) or VNĐ1 billion ($43,500).

The proposed rate is 0.3 or 0.4 per cent annually, with only the surplus construction value above the proposed threshold to be taxed.

Thành said this law was proposed in context of not having a complete database on distribution of social assets, while this would be the reference function for calculating the most appropriate tax rate.

In the study, the research team has assumed tax rates of 0.3 per cent and 0.4 per cent for the threshold of VNĐ700 million, VNĐ1 billion and VNĐ2 billion, thereby assessing the impact of these rates on the people.

With the threshold of VNĐ2 billion, if the tax rate is 0.3 per cent, the tax per household is VNĐ763,000 (equal to 0.53 per cent of total income), reduced spending rate is VNĐ525,000 (0.22 per cent of total expenditure). If the tax rate is 0.4 per cent, the tax payable per household is VNĐ1.019 million (equal to 0.72 per cent of the total income), the reduced expenditure is VNĐ700,000 (equal to 0.29 per cent of the total expenditure).

For the threshold of VNĐ700 million, if the tax rate of 0.3 per cent, the tax per household is VNĐ978,000 (0.66 per cent of total income), reduced expenditure is VNĐ638,000 (0.27 per cent of total spend). If the tax rate is 0.4 per cent, the tax rate per household is VNĐ1.3 million (0.89 per cent of total income), the reduced expenditure is VNĐ851,000 (0.36 per cent of total expenditure) .

For the threshold of VNĐ1 billion, if the tax rate is 0.3 per cent, the tax per household is VNĐ897,000 (0.61 per cent of total income), reduced spending is VNĐ600,000 (0.25 per cent of total expenditure). If the tax rate is 0.4 per cent, the tax payable per household is VNĐ1.198 million (0.82 per cent of total income), the reduced expenditure is VNĐ800,000 (0.34 per cent of total expenditure).

As a result, the tax rate of 0.3 per cent for the threshold of VNĐ2 billion for housing has the smallest impact on the household, said Nguyễn Việt Cường, vice director of Institute of Public Policy and Management, National Economics University.

“The asset tax will reduce household disposable income by about 0.9 per cent; real expenditure reduction of about 0.7 per cent,” he added.

VEPR’s director identified that if property taxes are issued with tax thresholds as mentioned in the proposed law, household incomes and expenditures will be reduced. However, it does not affect poverty and primarily reduces the income of the rich. Thus, the inequality index is improved but mainly because the rich are less rich, not because the poor are getting richer.

“So property tax is not a sustainable tax if public spending does not promote social well-being and productivity, " Thành told Việt Nam News. — VNS

 

Taxpayers at the Hà Nội Tax Department. Under a draft law on houses proposed by the finance ministry, houses with construction values of either more than US$30,400 or $43,500 would be taxed at the rate of 0.3 per cent and 0.4 per cent, respectively. — VNA/VNS Photo Hoàng Hùng

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