Higher property taxes may lift development

September 3, 2009

LookAtVietnam – Business representatives and legal experts gathered with ministry officials in Ha Noi on Tuesday to discuss drafts of proposed laws on property taxation

Land and buildings used for commercial purpose should be taxed higher as the draft law would levy non-agricultural commercial property under the basic tax rate of 0.03%.

The draft property tax law was aimed at correcting inequalities in current tax exemptions and reductions, improving State administration of land and housing, and encouraging organisations and individuals to use land more effectively and economically, thereby contributing to a decrease in real estate speculation and sustainable development of the property market, said the deputy head of the Ministry of Finance’s Department of Tax Policy, Pham Dinh Thi.

Former Deputy Minister of Natural Resources and Environment Dang Hung Vo pointed to the need to make clear that real property would be taxed based on areas and values.

“It is also essential to separate taxpayers into different classes,” said Vo. “Those who own real property but do not put it into use would be subjected to a different tax rate in order to prevent wasteful and ineffective use as well as real estate speculation.”

A decrease in the basic property tax rate from 0.05 per cent to 0.03 per cent, as called for by the Ministry of Finance, was also reasonable, he said.

“In other countries, the basic tax rate is 1 per cent, but this rate has proven unsuited to the incomes and living conditions of the Vietnamese people,” Vo said.

Land and buildings used for commercial purpose should be taxed higher as the draft law would levy non-agricultural commercial property under the basic tax rate of 0.03 per cent.

Viet Nam Construction Association vice chairman Pham Sy Liem also said that such a low tax rate would not help prevent speculation. He also urged that taxes on residential property be based not only on types of housing but on the socio-economic conditions of different localities.

Prof Nguyen Quang Tien from the University of Law agreed that taxing residential property based on value was not suited to rural and mountainous areas.

Prof Nguyen Minh Phong from the Ha Noi Socio-Economic Research Institute said the draft law’s scope was too narrow because it only targeted residential or non-agricultural commercial property.

The draft law will be submitted to the National Assembly for discussion in October this year and is expected for approval in May, 2010.

Resource royalties

The National Assembly Finance and Budget Committee also held a workshop on Tuesday to discuss the draft law on natural resources royalties, which, if passed, would take effect next January 1.

An expert from the Viet Nam Association of Wood and Forest Products, Vu Long, wondered why the fees levied on natural forests, at 10-40 per cent, were higher than other types of natural resources.

“The tax rates needs to be restructured as they will discourage forestry businesses and cause companies to over-exploit natural forest to earn enough to ensure their business sustainability,” Long said.

The vice chairman of the Mining Working Group in Viet Nam, Bill Howell, expressed concern over the high levels of proposed royalty rates on minerals (from 5-30 per cent) and said there was no explanation in the law as to when and in what situations the rates would be applied, leading to huge uncertainty.

“At a tax rate of 30 per cent of the value of the minerals recovered, no investor could ever consider committing funds to a mining project in Viet Nam. Even at the lowest proposed tax rate of 5 per cent, investors would have to think twice when most of the rest of the world applies a rate in the average range of 2-4 per cent,” he said.

Pham Chi Cuong, a representative from the Viet Nam Steel Association, proposed a maximum rate on minerals of 15 per cent. A higher tax rate would help encourage conservation but would also lead to tax evasion and reduced competitiveness of Vietnamese products, he said.

Vu Khac Thu, a representative from Electricity of Viet Nam, proposed a rate of 2 per cent on natural water used for hydroelectric production, rather than the draft law’s proposed rate of 2-5 per cent.

He proposed tax reductions for multi-purpose hydroelectric facilities because, in addition to producing electricity, these facilities served to regulate rivers, prevent floods, and provide irrigation for agricultural production.

National Assembly Finance and Budget Committee vice chairman Cao Ngoc Xuyen said the public comments gathered would contribute to the final draft of the law and ensure its fairness and greater effectiveness once implemented.

VietNamNet/Viet Nam News

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