Property has been suffering a variety of taxes in the process of formation, meaning applying an annual tax on property is unreasonable and distorting the taxation principle.

That was the statement made by Nguyen Duc Thanh, Director of the Viet Nam Institute for Economic and Policy Research (VEPR), at a conference held in Ha Noi on Wednesday.

The conference announced the result of the study "Applicability and impact of property tax in Viet Nam", implemented by VEPR in co-operation with Dutch NGO Oxfam Viet Nam.

Recently, the Ministry of Finance proposed a tax on houses depending on their construction value as part of a draft law on property tax.

Under the proposed law, there are two options: imposing tax on houses with construction value of either more than VND700 million (US$30,400) or VND1 billion ($43,500).

The proposed rate is 0.3 or 0.4 per cent annually, with only the surplus construction value above the proposed threshold to be taxed.

Thanh said this law was proposed in context of not having a complete database on distribution of social assets, while this would be the reference function for calculating the most appropriate tax rate.

In the study, the research team has assumed tax rates of 0.3 per cent and 0.4 per cent for the threshold of VND700 million, VND1 billion and VND2 billion, thereby assessing the impact of these rates on the people.

With the threshold of VND2 billion, if the tax rate is 0.3 per cent, the tax per household is VND763,000 (equal to 0.53 per cent of total income), reduced spending rate is VND525,000 (0.22 per cent of total expenditure). If the tax rate is 0.4 per cent, the tax payable per household is VND1.019 million (equal to 0.72 per cent of the total income), the reduced expenditure is VND700,000 (equal to 0.29 per cent of the total expenditure).

For the threshold of VND700 million, if the tax rate of 0.3 per cent, the tax per household is VND978,000 (0.66 per cent of total income), reduced expenditure is VND638,000 (0.27 per cent of total spend). If the tax rate is 0.4 per cent, the tax rate per household is VND1.3 million (0.89 per cent of total income), the reduced expenditure is VND851,000 (0.36 per cent of total expenditure) .

For the threshold of VND1 billion, if the tax rate is 0.3 per cent, the tax per household is VND897,000 (0.61 per cent of total income), reduced spending is VND600,000 (0.25 per cent of total expenditure). If the tax rate is 0.4 per cent, the tax payable per household is VND1.198 million (0.82 per cent of total income), the reduced expenditure is VND800,000 (0.34 per cent of total expenditure).

As a result, the tax rate of 0.3 per cent for the threshold of VND2 billion for housing has the smallest impact on the household, said Nguyen Viet Cuong, vice director of Institute of Public Policy and Management, National Economics University.

“The asset tax will reduce household disposable income by about 0.9 per cent; real expenditure reduction of about 0.7 per cent,” he added.

VEPR’s director identified that if property taxes are issued with tax thresholds as mentioned in the proposed law, household incomes and expenditures will be reduced. However, it does not affect poverty and primarily reduces the income of the rich. Thus, the inequality index is improved but mainly because the rich are less rich, not because the poor are getting richer.

“So property tax is not a sustainable tax if public spending does not promote social well-being and productivity, " Thanh told Viet Nam News. — VNS