Vietnam proposes taxing 20% of real estate transfer profits

At the conference "Personal Income Tax Law - Ensuring Fairness, Promoting Growth" organized by Labor Newspaper in collaboration with the National Economics University, Associate Professor Dr. Phan Huu Nghi, Deputy Director of the Banking and Finance Institute of the National Economics University, stated that income from real estate transfers is currently one of the important sources of revenue in the personal income tax system.

However, Mr. Nghi also stated that the current tax calculation method still has many shortcomings that need adjustments to ensure greater fairness and transparency.

Currently, real estate sellers are required to pay tax at a rate of 2% on the total transaction value stated in the transfer contract. Although this method is simple and easy to collect, it creates loopholes for buyers and sellers to declare transaction values lower than the actual price, leading to tax revenue loss and making the real estate market less transparent.

To address the above situation, Associate Professor Dr. Phan Huu Nghi proposes applying a 20% tax on the difference between the purchase price and the selling price. This helps to more accurately reflect the actual income from real estate transactions while simultaneously preventing tax evasion.

Associate Professor Dr. Phan Huu Nghi also noted that applying a 20% tax on the profit will face some difficulties. Specifically, determining the initial purchase price: For transactions that took place many years ago or for assets that were inherited or gifted, determining the original purchase price will be very difficult. Besides that, proving renovation and repair costs: Sellers may have invested in renovating the property, but proving these costs for deduction when calculating tax will still face many challenges.

However, Mr. Nghi also believes that the tax authorities and the Ministry of Agriculture and Rural Development have sufficient information about buying and selling prices for tax calculation. Therefore, controlling transfer prices is entirely feasible by cross-referencing with actual data.

When buyers agree to declare a low price to avoid taxes, they will face difficulties when it comes time to resell because they will have to record a purchase price lower than the market value. This can lead to a higher amount of tax payable in the subsequent resale transaction, especially when the new buyer does not agree to a dual-pricing scheme (i.e., declaring a low price)

The 20% tax on the difference between the buying and selling price should also be accompanied by strict penalties for the act of misreporting the price. In that case, real estate transactions will become more transparent, limiting the situation of "dual pricing" (actual price and declared price), and at the same time helping the State collect taxes more fairly. The market where prices are inflated by brokers and speculative buying and selling will be maximally limited.

One of the important impacts of applying a 20% tax on actual profit is that it will help limit the situation of pushing up housing prices in Vietnam. If the policy of strictly taxing the added value is implemented, real estate companies will also have to calculate more carefully when deciding on selling prices, thereby helping the market operate more transparently and effectively.