Vietnam Law & Legal Forum Magazine is your gateway to the law of Vietnam

Official Gazette

Friday, August 7, 2020

Revising land-related taxes

Updated: 10:19’ - 26/09/2008

Dr. Nguyen Quang Tuyen
Hanoi Law University

The land use tax, land use right transfer tax and land and house tax constitute important parts of the land-related financial policy. These taxes have helped increase state budget revenue from land. Though being constantly amended in order to meet the practical requirements of national development, land-related taxes still reveal many limitations.

Land and house tax

The land and house tax has been provided for in the Ordinance on Land and House Tax adopted on July 31, 1992, by the National Assembly Standing Committee, and the May 19, 1994 Ordinance Amending a Number of Articles of the Ordinance on Land and House Tax, which “temporarily not provides for the house tax and the collection of the house tax” (Article 1). So far, the State has collected tax only on two categories of land: residential land and work construction land. This fails to conform to the categorization of land under the 2003 Land Law, which classifies land into three groups: agricultural land, non-agricultural land and unused land. The non-agricultural land group covers residential land, defense and security land, production and business land, etc.

Moreover, the land tax has been calculated not on the basis of land value but on the agricultural land use tax, which equals between 1 and 32 times the highest agricultural land use tax, depending on the category and location of land. This is truly irrational as residential land and work construction land are totally different from agricultural land. The price of residential land or work construction land varies greatly, depending on types of urban center, types of street and location of land plots. In reality, two land plots in the same urban center or on the same street but in different locations (one on the street frontage and the other in a street alley) greatly differ in value but are irrationally liable to the same land use tax rate.

For these reasons, the Ordinance on Land and House Tax should be amended to comply with the Land Law.

Agricultural land use tax

The agricultural land use tax has been introduced since January 1, 1994, under the Agricultural Land Use Tax Law passed on July 10, 1993, by the National Assembly, the Ordinance on Additional Tax Applicable to Households Using Agricultural Land in Excess of the Prescribed Area Quotas, passed on March 15, 1994, by the National Assembly Standing Committees, National Assembly Resolution No. 15/2003/QH11 of June 17, 2003, on agricultural land use tax exemption and reduction, as well as guiding documents of the Government and the Ministry of Finance.

Agricultural production land liable to tax includes cultivation land, aquaculture land and agricultural land. Under Resolution No. 15/2003/QH11, between 2003 and 2010, farmer households using agricultural land within the prescribed area quotas are not liable to pay agricultural land use tax.

The agricultural land use tax is calculated on the basis of land area, land category and tax rate. As the land category used for tax calculation is determined on the basis of soil conditions, land location, terrain, climate, weather and irrigation conditions, it is very difficult, complicated and costly to determine it though the accuracy is not so high. Moreover, the tax rate, which has been calculated in kilograms of paddy/hectare/year (collected in kind) for each category of land on the basis of use purpose and output, is no longer suitable to conditions of a market economy.

Under current law, the agricultural land use tax is calculated on the basis of land prices set by provincial-level People’s Committees in accordance with the Government’s price bracket, which are close to actual market prices of land use right transfers under normal conditions and promulgated on January 1 every year. In addition, the tax rates in the Government’s land price bracket promulgated together with Decree No. 188/2004/ND-CP of November 16, 2004, on methods of determination of prices and price brackets applicable to different categories of land, for mountainous communes are usually higher than those applicable in midland and delta communes which are endowed with more favorable irrigation, transport conditions than highland areas.

In addition, the Agricultural Land Use Tax Law provides that the tax is collected in paddy which is actually converted into money on the basis of paddy prices set by provincial-level People’s Committees for each harvest. This has led to unfairness in tax collection since collected tax amounts are higher in mountainous areas as paddy prices in mountainous areas are higher than those in midland and delta regions, or are higher upon crop failure due to natural disasters than in normal harvests. In some cases, the paddy prices for land of the same category even vary from locality to locality, aggravating inequality in agricultural land use tax collection.

Land use right transfer tax

The land use right transfer tax has been applied since July 1, 1994, under the Law on Land Use Right Transfer Tax, passed on June 22, 1994, by the National Assembly, and the December 21, 1999 Law Amending a Number of Articles of the Law on Land Use Right Transfer Tax. Under this Law, land users must pay land use right transfer tax when they are permitted by the State to transfer their land use rights.

The land use right transfer tax is calculated on the basis of the transferred land area, transferred land price and tax rate. The land price is set by provincial-level People’s Committees in accordance with the Government’s price bracket for the relevant category of land at the time of transfer. In case of land use right auction, it is the winning bid. The tax rate of 2% applies to the transfer of the rights to use agricultural land, forest land, aquaculture land or salt-making land while the 4% tax rate is applicable to the transfer of the rights to use residential land and work construction land.

Reality shows that the 4% tax rate is too high for people when they transfer the rights to use residential land in urban centers where the land prices are set and increased annually by provincial-level People’s Committees to suit the market prices of residential land use right transfers. Moreover, the land use right transfer tax rate is based on the act of land use right transfer rather than the income earned by land users from the land use right transfer. This has led to the state of “level” tax collection for all cases of land use right transfer, regardless of whether it is for commercial or residential purposes. Consequently, the land use right transfer tax has failed to effectively resolve the problems of land speculation and illicit transfer.

To remedy the above limitations of the land use right transfer tax, from January 1, 2009, land use right transfer transactions by individuals will be governed by the Personal Income Tax Law, under which incomes earned by individuals from real estate transfer will be subject to a wholly progressive rate of 25%. If the purchase price and expenses related to real estate transfer cannot be determined, a tax equal to 2% of the real estate transfer price must be paid.

Proposals for better real estate tax laws

The State should promulgate a common law on land use tax to replace the current laws on land and house tax and agricultural land use tax, which would apply to all cases of land use (regardless of agricultural land, residential land and work construction land) at different tax rates for different categories of land in order to ensure equality in tax collection and prevent tax losses. Tax rates applicable to agricultural land should be lower than those for residential land, work construction land and other categories of land.

The base for calculation of agricultural land use tax collected in kind (kilogram of paddy/hectare/year) should be replaced by that calculated in value (money/hectare/year) to suit the land management and use under market economy conditions.

The application of additional tax to cases of land use in excess of prescribed area quotas or the promulgation of a real estate tax law should be studied in order to restrict land speculation and encourage thrifty and efficient use of land.-

VNL_KH1 

Send Us Your Comments:

See also:

Video

Vietnam Law & Legal Forum