Taxation to deter real estate speculation needs clarity, robust data

Experts endorse a proposed 20 percent personal income tax (PIT) on profits from real estate transactions as a reasonable measure to curb speculation.

However, they argue that the tax rate applied to cases lacking clear documentation of purchase prices and associated costs is disproportionately high, requiring more precise guidelines and comprehensive data to ensure fairness and effectiveness.

In cases where the original purchase price and associated costs of a real estate transaction cannot be verified, the proposed personal income tax (PIT) on profits from such sales would be calculated based on a percentage of the property's selling price, with rates diminishing based on the holding period. This tiered approach aims to differentiate between short-term speculative gains and longer-term investments, even in the absence of complete financial records.

Specifically, the following rates would apply to the selling price:

• 10 percent for properties held for less than 2 years, targeting rapid turnover.
• 6 percent for properties held for between 2 and less than 5 years.
• 4 percent for properties held for between 5 and less than 10 years.
• 2 percent for properties held for 10 years or more, favoring long-term asset holding.

It is also notable that inherited properties would be subject to a flat 2 percent tax rate on the selling price regardless of their holding period.

This framework, while seeking to ensure tax collection in situations with incomplete documentation, has been a point of discussion among experts. While acknowledging the need for such provisions, some have expressed concerns about the excessively high rates applied, particularly for shorter holding periods, when compared to the 20 percent tax on actual profits where costs are verifiable. The implementation of these specific rates underscores the Government's dual objective which are to deter speculation and to establish a robust, fair, and comprehensive taxation system for real estate.

According to the Ministry of Finance, under current personal income tax (PIT) laws, income from real estate transfers is subject to a flat PIT rate of 2 percent on each transaction’s transfer value. However, many experts voiced their opinions about the need to reconsider how PIT is applied to real estate transactions to better reflect the economic substance of these deals. The Ministry notes that, based on calculations, applying a 20 percent tax on taxable income would result in a similar tax burden to the current 2 percent rate on transaction value.

In some cases such as when the difference between purchase and sale prices is minimal, there is no income, or there is a loss when taxing 20 percent on actual income would benefit individuals by aligning tax liability with actual earnings from the real estate transaction. However, shifting to a 20 percent tax on income requires a suitable roadmap, aligning with improvements in related policies on land and housing, as well as the readiness of data infrastructure and IT systems for land registration and real estate transfers. This would provide tax authorities with adequate information and legal grounds to correctly assess and collect taxes.

Regarding this proposal, economic expert Nguyen Tri Hieu believes it could have a positive impact on the real estate market. Specifically, taxing based on actual income (profits) enables individuals to pay taxes that reflect their real financial capacity and earnings, encouraging accurate transaction price declarations. Moreover, the new method could increase state revenue from high-profit real estate transactions, providing more resources for public investment and infrastructure development.

Additionally, the proposal to reduce tax rates based on holding periods would encourage longer-term asset ownership, helping stabilize the market and curb speculative flipping. A higher tax rate (10 percent) for properties held for under two years would significantly reduce short-term speculation and profits, forcing investors to reconsider quick flips. With less speculation, market fluctuations would ease, property prices would reflect actual value, and artificial price surges would be minimized. As per expert Hieu, tax policy is always a powerful tool for market regulation and income distribution. Successfully implementing these changes would contribute significantly to the sustainable and transparent development of Vietnam’s real estate market.

Lawyer Huynh Van Nong of the Ho Chi Minh City Bar Association said that taxing PIT based on profit aligns well with international norms and reflects the true nature of income tax. However, to implement this, the tax sector must develop a comprehensive transaction history database. Determining deductible expenses such as purchase costs, renovation, brokerage fees, paperwork, and bank loan interest also poses challenges. In reality, many past transactions lack invoices or documents to prove such expenses.

Meanwhile, Chairman Tran Van Chau of the Board at Real Estate JSC believes the Finance Ministry’s proposal would have limited impact on real estate companies but would mostly affect individual sellers. While a 20 percent tax on profit is reasonable, successful implementation requires a complete data system and a phased rollout. Moreover, for cases where the purchase price and related costs cannot be determined, the proposed rate is too high.

Chairman Chau's recommendations advocate for a significant reduction in the current proposed tax rates, aligning them more closely with the objective of curbing speculation while supporting long-term property ownership. The proposed revised structure for taxing the selling price in such scenarios is as follows:

• For properties held for less than two years: The tax rate should be reduced to 5 percent.
• For properties held for two years to under five years: A rate of 3 percent is recommended.

• For properties held for five years to under ten years: The proposed rate is 2 percent.
• For properties held for ten years or more: Chairman Chau suggests a further reduction to 1 percent, or even a complete tax exemption, emphasizing the policy's intent to reward and incentivize long-term property retention.