Real estate purchased 20 years ago, applying 20% tax on transfer profits is unreasonable

Real estate bought 20 years ago had a very low original price, but now when sold, it often increases 10 times due to depreciation. Therefore, imposing a 20% tax on the difference between buying and selling is unreasonable and causes losses to taxpayers.

The Ministry of Finance is seeking comments on the draft Law on Personal Income Tax (replacement). According to the submission, the ministry proposes that personal income tax on income from real estate transfers of resident individuals be determined by multiplying taxable income by the tax rate of 20% for each transfer.

In case the purchase price and costs related to the transfer are not determined, tax will be calculated based on the holding period. The holding period is calculated from the time the individual has the right to own and use the real estate (from the effective date of the new Personal Income Tax Law) to the time of transfer.

Taxation must be directed at the right target.

Sharing with VietNamNet reporter, Dr. Nguyen Ngoc Tu, lecturer at Hanoi University of Business and Technology, said that the proposal of a 20% tax rate on real estate transfer income is to return to the true nature of personal income tax. That is, tax is levied on income, not revenue - that is, even if there is a loss, tax must still be paid.

The 20% tax rate is temporarily acceptable because it must be similar to corporate income tax. However, Mr. Tu noted that it is necessary to deduct reasonable expenses with invoices and documents for taxpayers such as brokerage fees, bank loan interest, and repair and renovation costs.

Besides, according to Mr. Tu, for real estates purchased a long time ago, 20 years ago, even if there are documents confirming the purchase price, the price is still very low, now the selling price has increased 10 times due to depreciation. Therefore, if based on the difference in purchase and sale prices, applying a 20% tax is unreasonable, it is disadvantageous for taxpayers.

Experts say that personal income tax is collected on businesses, and cannot be taxed on people who sell their houses for living needs. Photo: Hoang Ha

In this case, the expert proposed a flexible tax mechanism that should not be imposed but should give taxpayers the right to choose.

Accordingly, in cases where the purchase price is too long or cannot be determined, taxpayers should be allowed to choose between two options: one is to pay 20% on the interest, the other is to pay a fixed tax rate of 2% on the selling price as currently.

The expert emphasized that it must be clearly defined that personal income tax is collected for business purposes. It is impossible to tax people who sell their houses for living needs, such as selling their houses to get money for their children to study abroad, to cover medical expenses, or because of a job transfer from Vung Tau to Ho Chi Minh City and having to change their residence. Similarly, when they have economic conditions, people sell their small houses to buy larger ones; or when they get old, they want to sell their houses to divide among their children and grandchildren.

"Such cases cannot be considered as income for tax purposes, because it is not in accordance with the nature of personal income tax. It needs to be clearly regulated in the law," Mr. Tu argued.

In cases where the purchase price and costs related to the transfer are not determined, the tax will be calculated based on the holding period, such as selling a house that has been held for less than 2 years and is subject to a 10% tax on the selling price to prevent speculation. The expert said that this is a solution that "does more harm than good" and is "inconsistent" with the principles of the law.

“The principle is to tax 20% of profit. All calculations must comply with that principle. Why is a completely different tax rate applied to the selling price in the case of no invoice? A person with an invoice is charged 20% of the profit, while a person without an invoice may have to pay 10% of the entire selling price. That is unfair and unreasonable,” Mr. Tu analyzed.

Furthermore, he warned that this measure not only fails to prevent speculation but could also become a factor in increasing prices, making it more difficult for young people and wage earners to access housing.

"The Personal Income Tax Law only taxes generated income. If we want an effective tool to combat real estate speculation, we need to enact a law on property tax," he said.

20% tax and the market 'cleansing'

Mr. Nguyen Quoc Anh, Deputy General Director of Batdongsan.com.vn, said that applying a 20% tax rate on real estate transfer profits is an inevitable trend in the world and in Vietnam it is just a matter of time.

“All countries have applied it. Japan taxes up to 39% of profits if you sell your house within 5 years. Vietnam’s proposal is not unreasonable, it is even reasonable. However, its application requires extremely careful consideration,” said Mr. Quoc Anh.

The biggest challenge, he said, is timing and data. “To be effective, we need a transparent database of purchase prices, selling prices, and costs. Otherwise, the policy will be vague and very dangerous. Moreover, in a market where supply is out of sync with demand, this tax will most likely be passed on to the end buyer,” he pointed out the risk.

He predicted that if this policy is applied, it will create a major “cleansing” in the market. Real estate investment will become a true financial investment.

"Investors must calculate cash flow, profits, and balance with other channels. Short-term, 'surfing' investors without knowledge will be eliminated. Those who stay will be real investors who understand the value of real estate, the potential for price increase, and the cash flow," Mr. Quoc Anh emphasized.

Source: https://vietnamnet.vn/bat-dong-san-mua-tu-20-nam-truoc-ap-thue-20-lai-chuyen-nhuong-la-bat-hop-ly-2426556.html