As reported by VietNamNet, the Ministry of Finance (MOF) has recently submitted a proposal to the government to replace the current personal income tax (PIT) Law, which includes provisions on tax rates on the incomes from real estate transactions.

Currently, taxation doesn’t depend on ownership duration. The income from buying and selling houses or land is taxed 2 percent of transfer prices.

In its recent proposal, MOF suggested taxing real estate transactions based on ownership duration, a taxation mechanism applied in many countries.

The ministry also proposed adjusting the progressive tax table applied to resident individuals who have income from wages and salaries to align with recent changes in income and macroeconomic indicators. 

It also plans to adjust the tax rates in the full tax schedule corresponding to amendments on income from capital transfers and real estate transactions.

According to the CEO of a real estate firm, taxable income from real estate transfer is currently defined as transfer prices each time, and the tax rate is 2 percent. Therefore, if MOF wants to tax land or houses based on ownership duration, it needs to consider the issue carefully to avoid overlapping taxation.

Currently, as there is a shortage, the prices of land or houses in large cities such as Hanoi and HCM City are very high.

Various measures have been proposed to cool down housing prices, including taxing second and subsequent homes, taxing individuals owning multiple properties, and imposing personal income tax on real estate transactions. 

However, the supply shortage and price surges are not a common phenomenon throughout the country, but only occur in larger cities. Things happening in only some localities must not represent the entire country.

The businessman warned that if applying the taxation scheme as proposed, project developers will have to raise selling prices to ensure profits, and if so, housing prices will rise.

Dinh Trong Thinh, a respected economist, agrees with MOF that it is necessary to tax real estate transfers based on the property holding period.

"This is a necessary measure to avoid speculation and foster a healthy real estate market," he said.

Thinh said that taxation based on property holding periods will not cause real estate prices to escalate.

Currently, demand is too high. But when the supply-demand imbalance is improved, the taxation as proposed will help reduce speculation and make the market healthier.

"I agree with the opinion that it is necessary to levy higher taxes on transfers carried out after a short ownership time. It is a necessity,” he said. 

“Policymakers will design a taxation scheme. We can consider taxing heavily on transactions (buy and sell) carried out in the same year. If property owners sell their properties after a longer time of holding, the tax should be lessened,” he suggested.

“If they sell properties after five or more years after they buy the properties, they may not have to be taxed, or bear low tax rates,” he explained.

Nguyen The Diep, Vice Chairman of the Hanoi Real Estate Club, said it is necessary to consider the time for implementation. 

"Taxing incomes from real estate transactions in accordance with the Personal Income  Law is essential. But currently, when the market is facing difficulties, the proposal could have psychological effects,” he warned. 

At first, the tax rates would be low, and increase step by step, when the market becomes more stable and sufficient data about land exists.

Several countries use taxation as a tool to increase the costs of speculation and reduce the attractiveness of real estate speculation.

Some countries impose taxes on profits from real estate transactions according to the transaction frequency and holding period. If the frequency of selling or buying is high, the tax rates will be high, and if the frequency is low, the tax rates will be lower.

In Singapore, property bought and sold within the first year is taxed 100 percent on the profit (the gap between selling and buying prices). After two years, the rate is 50 percent, and after three years, it is 25 percent.

Hong Khanh