Constraints in public land revenue collection

The annual fee collection for allocating public land or one-time payment for leasing public land currently constitutes 80% of total revenue from land, making it a very important income source for provinces. However, many constraints remain in the current public land revenue collection method.

Legal loopholes and corrupt practices
Bringing public land into the market to develop the economy is one of the most popular methods to capitalize on public land. 
In a subsidized economy, land and related assets are owned by governments. When transforming from subsidized economy to a market based economy, most countries capitalize on public assets to create financial resources for the country. The most popular method is allowing public assets to be used for private purposes to achieve a financial target by the government.
 Huge corruption in public land dealings is always linked to land allocation and land leasing to appointed investors, while rampant corrupt activities are occurring at administrative level.
Unfortunately, this process has not been successful in Vietnam because of prevailing corrupt practices. Corruption in public land dealings usually is on top of corrupt practices and most tycoons have become rich quickly from nefarious public land dealings.
To successfully bring public land into the market, we need to focus on two things: Reasonable planning and seriously enforcing a plan to create added value on public land; and finding a method to bring public land into the market to collect revenue properly and fairly.  
We have never been successful in creating added value on public land. It is easy to understand when the 2013 Land Law does not govern the auctions of public investment projects with land use rights. Furthermore, decree 30/2015/ND-CP, which regulates some terms of the 2013 Land Law, is over-governing the projects with land use rights.
Practically speaking, the mechanism of price auctions in allocating public land still faces many challenges, such as lack of a financial fund to complete land clearance. 
Although the 2013 Land Law already governs the financial resources for these public land areas (10% of land revenue), these resources are not feasible, especially in small provinces which need more investment.
There are also some regulations which allow the investors to use the land without auctions. The criteria to choose the investors is also unclear and is currently a legal loophole.
Constraints in public land revenue collection ảnh 1 Vietnamese Film Studio is a typical example of acquiring golden land areas through privatization SOEs.
Golden land areas for privatization and BT projects
Privatization of state owned enterprises (SOEs) is also another method to bring public land into the market and allow private enterprises to use it. Most investors focus only on acquiring golden land areas, and ignoring the process to restructure enterprises. The privatization of the Vietnamese Film Studio is a typical example of such a case.
Some other private companies, with the purpose of acquiring public land, try to increase their stake in enterprises to controlling level in order to have rights to decide on the land area. The SOEs privatization process becomes a land seeking process for private investors. Many SOEs have disappeared, only the golden land area remains.
Since 1996, the government has issued nine decrees to govern valuation of public land for privatization of SOEs. However, it is still not in effect. The 2013 Land Law only requires that valuation of each land area in privatization process is determined on different and specific cases. 
Currently, the land valuation process is not suitable to the market mechanism. Furthermore, the land which is leased from government for annual fee is not accounted in the enterprise value. However, in practice, many golden land areas, which are being used by many enterprises and have not completed the registration process, are considered leased land. This is also another legal loophole, which needs to be dealt with to avoid government losses in privatization. 
The exchange of infrastructure projects for public land banks is also a way to capitalize on public land. This process has been creating many social controversies. Most experts think that the value of the land banks is much higher than the value of the infrastructure projects. The public loss in this process is huge while the authorities in most provinces consider it a good way to develop the infrastructure quickly.
Most BT projects, which are audited or investigated by government, reveal many mistakes and legal violations. The land area, which is exchanged for the infrastructure project, is not appraised. The valuation of these land banks is dependent on the estimated value of the BT projects. This estimated value is also the base for the agreement signed between government departments and private investors. This process lacks transparency and creates favorable conditions for corrupt practices.
The 2013 Land Law governs the land to compensate for BOT and BT projects, but does not regulate the method to evaluate the land area.
Suggestions
The current legal loopholes should be dealt with in the Draft of 2013 revised Land Law to help government collect all revenues from public land through proper project auctions and price bidding. 
The mechanism to auction a public investment project with land use rights should be improved and included in the Land Law. The criteria for choosing a suitable investor should be made clearer and the government should add to this criterion a list to evaluate the effectiveness of land usage. The land auction mechanism should be determined precisely, and the criteria identified for choosing investors without a price bidding requirement.
The land valuation in SOEs privatization process should be reviewed strictly. This land value should be appraised precisely and prudently.
For the land that pays an annual fee, or currently being used without registration, the government should review carefully for more effective use. Government should not allow privatized companies to change the land functions and usage purpose, except the land which is repossessed by the government.
For the land that is allocated to government offices or SOEs for free, government should apply strictly the three following rules: 
First, it should make public the list of land areas allocated for free on the electronic portal of the provincial People’s Committee with details of land bank address, size of land, purpose of usage and status of the land area.
Second, the government should appoint a team or have an office to receive ideas, information and feedback from residents, institutions and transfer this feedback to developers, for further analysis.
Third, the government offices or companies who are using these land areas must report to the residents all related issues. Any legal violations should be strictly punished. The highest penalty should be to repossess the land.
For land areas which are used as compensation for BT projects, government should govern clearly the method to evaluate the land valuation in planning, signing of agreement and settling of BT projects.
For appointing investor process, the criteria should be determined clearly and transparently, especially criteria related to using public land. The government should add to the 2013 Land Law the terms to regulate the use of public land in BT projects. Accordingly, the BT project should be only allowed when its net benefit, after excluding cost, is higher than that of the method used for land clearance and price bidding to get money to construct the infrastructure project. 

Professor, Dr. Dang Hung Vo

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