Vietnam's suggested 20% property profit tax incites investor apprehensions
Vietnam's proposed capital gains tax on real estate transactions, ranging from 10% to 20% on profits, is causing a stir among investors and real estate experts. The new tax regime, if implemented, is expected to have significant impacts on the real estate market and the broader economy.
Impact on Investors
The shift from the current flat 2% tax on property sale prices to a 10-20% levy on actual profits (sale price minus purchase price and related costs) is seen as a potential erosion of earnings for property investors. This higher tax rate may discourage investment, particularly speculative purchases, as it reduces the net gains from property sales.
Investor Le Kieu Hanh, based in Phu My Hung urban area, expresses her concern, stating that her net profit from a high-end apartment is minimal, and paying tax on this small gain would barely break even for her. Real estate brokers also voice concerns about liquidity, stating that higher taxes could prompt many individual investors to pause or cancel deals.
Market Recovery and Broader Economy
Experts warn that imposing such a high capital gains tax could "freeze" the secondary real estate market and slow the sector’s fragile recovery from a prolonged slump. The secondary market—where existing properties are traded—is particularly sensitive to transaction costs, and higher taxes could reduce liquidity and dampen trading activity.
Since the real estate sector is a significant component of Vietnam's economy, slowing down transactions could have ripple effects, potentially impacting construction, banking, and consumer-related sectors. The tax aims to curb speculation and increase tax fairness, but critics fear unintended consequences such as reduced market dynamism and less foreign investor appetite, which could limit economic growth.
Complex Implementation and Public Consultation
The proposed tax regime may face complex implementation due to Vietnam's limited real estate data and common use of under-declared transaction values. Tax experts warn that this could lead to challenges in accurately assessing profits and calculating taxes.
The Ministry of Finance plans a gradual and coordinated rollout of the new tax regime, aligning with reforms to land, housing, and digital infrastructure. The draft law amendment is under public consultation, and officials plan to continue gathering feedback and reviewing international best practices before submitting the final version to the National Assembly.
Aim and Concerns
The Vietnamese Finance Ministry has proposed the new tax regime to discourage speculation and bring more fairness to the tax system. However, many investors believe excessive taxation could deter participation, especially among smaller players, in the real estate investment market.
The ministry argues that taxing profits would better reflect economic fairness and, in some cases, might reduce the tax burden, especially where profit margins are thin or losses occur. Lawyer Nguyen Minh Trung urges authorities to accept a variety of expense documents to reflect actual costs.
In summary, while the proposed 10-20% capital gains tax on real estate profits in Vietnam is intended to enhance tax fairness and curb speculation, it is likely to reduce investors’ profits, dampen real estate market recovery by decreasing transaction activity, and potentially slow broader economic momentum linked to the property sector. The draft law amendment is currently under public consultation, and officials are gathering feedback to refine the proposed changes before submission to the National Assembly.
- The higher capital gains tax on real estate transactions, ranging from 10% to 20% on actual profits, could lead to a decrease in investment, particularly in speculative purchases, as it reduces the net gains from property sales, particularly for small investors like Investor Le Kieu Hanh.
- Real estate brokers are concerned that higher taxes could prompt many individual investors to pause or cancel deals, potentially leading to a "freeze" in the secondary real estate market and slowing down its fragile recovery from a prolonged slump.
- The tax aims to curb speculation and increase tax fairness, but critics, including lawyer Nguyen Minh Trung, fear unintended consequences such as reduced market dynamism, less foreign investor appetite, and potential limitations to economic growth.
- The Ministry of Finance plans a gradual and coordinated rollout of the new tax regime, aligning with reforms to land, housing, and digital infrastructure, but the proposed tax regime may face complex implementation due to Vietnam's limited real estate data and common use of under-declared transaction values.
- Tax experts warn that this could lead to challenges in accurately assessing profits and calculating taxes, and they urge officials to accept a variety of expense documents to reflect actual costs during the implementation process.
