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Contemplated 20% tax levy on real estate gains sparks apprehensions

Proposing a 20% tax on real estate transaction profits may potentially impede the housing market and hinder overall affordability for potential homeowners.

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3 min read
A suggestion to levy a 20% tax on revenues from property sales transactions may lead to detrimental...
A suggestion to levy a 20% tax on revenues from property sales transactions may lead to detrimental effects on the property market and affordability issues for potential homebuyers.

Contemplated 20% tax levy on real estate gains sparks apprehensions

The Ministry of Finance in Vietnam has floated a proposal to slap a 20% tax on profits from real estate transfers, a move that's sparked debate and curiosity in the property market. This initiative is part of a broader mission to refine taxation and boost transparency in real estate transactions.

Impact on the Property Market and Homebuyers

The proposal has generated a wave of confusion and apprehension among stakeholders. Some fear that the tax hike from 2% to 20% will cause a grim outlook for the property market, though it's important to note that the proposed 20% tax targets profits (selling price minus expenses), not the full selling price.

The Ministry proposes two methods for tax calculation:

  1. 20% Tax on Profits: This method is used when the transaction details are clear and transparent. This method is akin to corporate income tax and is designed to boost transparency and enhance revenue collection.
  2. 2% Tax on Transfer Price: This simpler method is applied when transaction details aren't accessible. While it simplifies the process, it might lead to a lower effective tax rate.

Homebuyers might feel the pinch if sellers choose to pass on the tax burden. However, it's essential to understand that this impact is indirect, as the tax primarily affects sellers of real estate.

Challenges in Executing the Tax

Implementing a 20% tax on profits necessitates precise records of purchase prices and transaction costs. The current database exhibits discrepancies between reported and actual values, which could complicate tax calculations.

Securing public acceptance and adherence is another challenge. Clarity about the new tax calculation methods is crucial to dispel misconceptions and resistances from taxpayers.

Any drastic changes in tax policies can spark market volatility, altering investment incentives and property demand, and leading to fluctuations in property prices, impacting both investors and homebuyers.

In essence, while the proposed tax aims to amplify transparency and optimize tax revenues, its implementation faces hurdles related to data accuracy, public perception, and potential market volatility.

[1] Realneza.vn. (2023, March 16). Understanding the new proposed 20% tax on real estate transfers. https://www.realneza.vn/knowledge-center/understanding-the-new-proposed-20-tax-on-real-estate-transfers-in-vietnam/

The Ministry of Finance has proposed two methods for calculating taxes on real estate transfers, depending on the availability of transaction data. -VNA/VNS Photo

[2] Vietnam Insider. (2023, March 18). Vietnam proposes new personal income tax laws for real estate transactions. https://vietnaminsider.vn/business/vietnam-proposes-new-personal-income-tax-laws-for-real-estate-transactions-119134/

[3] Vietnamplus.vn. (2023, March 17). Vietnam’s tax reform proposals focus on streamlining real estate taxation and expanding the tax base. https://vietnamplus.vn/vietnams-tax-reform-proposals-focus-on-streamlining-real-estate-taxation-and-expanded-tax-base/199357.vnp

[4] The Diplomat. (2023, March 20). The impact of proposed tax reforms on Vietnam's real estate market. https://thediplomat.com/2023/03/the-impact-of-proposed-tax-reforms-on-vietnams-real-estate-market/

  1. The government's proposal of a 20% tax on real estate transfer profits is part of a broader mission to refine taxation and boost transparency in the finance sector.
  2. The Ministry of Finance in Vietnam has proposed two methods for calculating the new tax on real estate transfers, depending on the availability of transaction data.
  3. The proposed 20% tax on profits from real estate transfers has sparked debate and curiosity in the property market, with some fearing it could lead to a grim outlook for the market.
  4. The new tax on real estate transfers could impact both investors and homebuyers, as any drastic changes in tax policies can spark market volatility, altering investment incentives and property demand, and leading to fluctuations in property prices.
  5. The implementation of a 20% tax on profits from real estate transfers faces hurdles related to data accuracy, public perception, and potential market volatility.
  6. Securing public acceptance and adherence to the new tax calculation methods is crucial to dispel misconceptions and resistances from taxpayers.
  7. Implementing the tax necessitates precise records of purchase prices and transaction costs, which is a challenge given the discrepancies between reported and actual values in the current database.
  8. While the proposed tax aims to amplify transparency and optimize tax revenues, its impact on the property market, homebuyers, and investors, as well as its implementation, has been warned about by various financial experts and media outlets.

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