The Ministry of Finance is considering two methods of calculating taxes on personal income from real estate transfers, depending on the availability of transaction data.
If clear data on purchase prices and related costs is accessible, the tax will be calculated using the formula: tax rate (expected to be 20%) multiplied by the taxable income, which is determined by subtracting legitimate expenses (such as brokerage, notarization, and renovation costs) from the selling price.
However, if it is not possible to determine the purchase price and related costs, the personal income tax will be a flat rate of 2% on the total transfer value, similar to the current method.
Advantages and Disadvantages of the Two Methods
According to economic expert Nguyen Quang Huy, CEO of the Finance and Banking Faculty at Nguyen Trai University, the 20% tax rate on net profit ensures fairness by taxing higher profits at a higher rate, while those with lower profits or losses may not need to pay any tax at all.
This method also aligns with corporate income tax regulations, treating organizations and individuals equally.
However, the challenge lies in the lack of a comprehensive, interconnected, and authenticated data system for real estate transactions in Vietnam. Many transactions occurred decades ago, making it impossible to trace original prices, especially for inherited, gifted, or informally purchased properties. This situation could lead to disputes and complaints regarding legitimate expenses and the timing of taxable income determination.
According to experts, proposing two parallel options is a reasonable step that demonstrates openness and practicality. Photo: Hoang Ha |
On the other hand, the 2% tax rate on gross revenue has the advantage of simplicity and ease of management, curbing fraudulent declarations, and ensuring stable budget revenues.
However, it is unfair to sellers who make a loss or a small profit, as they still have to pay the 2% tax. This does not accurately reflect the nature of income taxation, as it taxes revenue rather than profit.
Mr. Huy pointed out that in the context of incomplete data infrastructure, widely applying the net profit method could lead to management risks and disputes. In contrast, the 2% tax rate on gross revenue is a straightforward and effective management solution for a market that lacks transparency.
Therefore, proposing two parallel options, depending on data availability, is a reasonable step that demonstrates practicality and openness while avoiding significant market disruptions.
“Encouraging the application of the 20% tax rate on net income when sufficient documentation is provided will promote transaction transparency. This will gradually build a database of purchase and sale prices, renovation costs, and bank payment receipts. Such a transition cannot happen overnight, but this ‘two-option’ policy creates positive pressure and incentivizes standardized behavior,” said Mr. Huy.
In the short term, the policy may create a wait-and-see attitude or anxiety among those preparing to transfer property. Especially if the 20% rate is applied when only a portion of the costs can be determined, but there is not enough evidence to significantly reduce the tax liability.
In the long run, the policy will help distinguish between different types of investors: those who invest systematically with clear books, aiming for real profits and honest declarations; and speculators or short-term traders who rely on cash transactions and informal deals will face challenges, thus reducing speculation and curbing real estate bubbles.
The Need for a Transparent Data System
Ms. Tran Thi Cam Tu, CEO of EximRS Company, argued that the 20% tax rate benefits investors with low profits or losses as they may pay little or no tax at all, instead of a flat 2% rate regardless of their earnings.
Ms. Tu illustrated this with an example: “For a property sold for VND 5 billion, with a purchase price of VND 4 billion and related costs of VND 800 million, the personal income tax under the new method would be (VND 5 billion – VND 4.8 billion) x 20% = VND 40 million. In contrast, the old method would result in a tax of VND 100 million (VND 5 billion x 2%). This calculation encourages long-term investment and discourages speculation, leading to a more transparent market.”
However, she noted that the 20% rate could be disadvantageous if the profit is substantial. For example, for a property sold for VND 10 billion with a purchase price of VND 4 billion, the tax under the new method would be (VND 10 billion – VND 4 billion) x 20% = VND 1.2 billion, while the old method would result in a tax of only VND 200 million. Additionally, proving legitimate expenses (such as borrowing, inheritance, or brokerage costs) can be challenging and may lead to disputes.
Therefore, Ms. Tu emphasized the need for a clear and comprehensive data system and specific regulations to support accurate tax determination.
Mr. Huy suggested that during the transition phase, there should be a standardized mechanism for determining the original price, such as applying a price index based on the CPI, historical land price tables, or reasonable prices according to the area. This would encourage honest declarations even without complete documentation.
Simultaneously, there is a need to develop a national real estate and transaction data system, integrating information from banks, tax authorities, land agencies, and notaries. This foundation will enable the widespread application of the net income taxation method in the future.
Nguyen Le
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