Currently, the regulated listed land price in regional provinces is about 30-40% lower than the market price, causing irregular taxation. Most provincial authorities say that the low land price frame of the government is the reason for low regulated listed price in provinces.
|The land sale tax and related fee in land sale transactions in Vietnam are higher than in other countries. These tax and fee rates may lead to an increase in unregistered transactions which consequently create a hidden boom in the real estate market.|
Besides, it is hard to set up a data base on market land price as the contract price of land sale transactions are mostly unreal. Furthermore, the 2013 Land Law governs that the land tax be calculated based on regulated listed price in provinces. It is hard to build a professional management system and still avoid the unreal price of sales contracts.
It is also not easy to change the mechanism to settle disputes and controversies related to land price, especially the land price in calculating land tax, lease rate and compensations in cases where government allocates, leases and repossesses land.
The above consequences were caused by loopholes in the current legal system. To resolve these issues, we should build a completely new land valuation system. It should remove government land price frame out of the 2013 Land Law. It should establish a national appraisal committee to appraise regulated listed land price in different regions before approval.
The government should improve the process of land valuation which currently includes three steps. The price, which is governed in the first step, should be appraised by an independent appraisal committee. The appraisal committee members, mentioned in the second step, should be at least 50% from non-government institutions. The regulated listed land price of regional provinces, mentioned in the third step, should be at least 80% of market price. The government should set strict penalties on provinces who quote unreasonable land prices.
The Land Law should delegate the government or the National Appraisal Committee to determine the valuation methods in accordance with national standards of land valuation.
It should build a clear schedule to move from the land price frame to the land price map to make it easier to apply in practice.
Ineffective tax regime
The financial budget is the most important key to improving and developing the infrastructure of the city. In most countries, the budget to develop a city is taken from income resources, such as public land sales and private land tax revenue.
In Vietnam, the terms of public land and private land are used every day. However, they are not regulated legally by law. Currently, the law dictates that land is under public ownership.
The City’s financial budget for urban development comes from two sources, private land tax and income from public land, such as public land sales, public land leases and public land tax. These two sources contribute 10% to total city’s budget, with 80% of this amount coming from the latter source.
Taking a look at the structure of the budget, we found that the current financial regime is unreasonable and needs improvement. The land tax and fee scheme is not effective, and not yet playing a role in market regulation, thereby bringing in very low revenue from land tax.
Currently, land use tax rate is 0.33% of regulated price. In most developed countries, land use tax rate is about 1-1.5% of the market price. The Ministry of Finance has suggested an increase in land use tax rate up to 10 times and imposing of tax on both land and assets related to land. However, this proposal faces objections by local residents as it is not suitable to a country which has low income and maintains a regime of public land ownership.
Land valuation needs change
According to experiences from developed countries, land tax should contribute a high proportion to the local budget and should be the main source for developing infrastructure and public service projects in the city. The land tax is used as a tool to regulate the real estate market, avoid land speculation, and ineffective land usage. The land tax is also a tool to mitigate migration to hot cities, and upgrade the city’s infrastructure and construct more public projects.
Currently, the land sale tax is improperly collected as the contract prices are unreal because they are not the trading or market prices. The land sales tax is now calculated at 2% of the regulated price.
The other tax and fee related to a land sale transaction include: 0.5% of registration tax, 0.1% of notarization fee, and 0.1% of ownership transfer fee. So, the total cost for a land sale transaction is about 2.7% of regulated price. This does not include other costs related to cadastral measurement or additional documentations.
Completing the land tax system is necessary and should be done at the earliest. Two principals of tax and fee system should be determined as follows:
(1)Timeframe to increase the land tax from 0.33% to 1% must be set. The tax rate rise should be linked to improvement in wages. Regulated price must be suitable with market price.
(2)The land sales tax should be replaced by income tax and gradually other related fees must also be reduced.
To make regulated price suitable to market price, the government should follow three steps.
(1)The Ministry of National Resources and Environment must propose the land price (which can be done by an independent land valuation body).
(2)The Provincial Appraisal Committee must appraise the land price. This Committee should be led by Chairman of Provincial People’s Committee in coordination with the Finance Department and include at least one independent land valuation expert.
(3)The Chairman of Provincial People’s Committee will be the person to make a final determination of the regulated land price.
|The loophole in current legal framework causes loss in tax revenue, and creates unreal financial land system. It consequently is the reason of capital shortage for infrastructure development and migration consolidation. The corrupt and unfair treatment in public land usage is in turn now out of control.|