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Legal loopholes

Although it was amended twice, in 2012 and 2014, the Personal Income Tax Law (issued in 2007) still has regulations that are no longer suitable for the realities of the ever-changing real estate market.

For example, the regulation on the two-percent personal income tax rate subject to property transactions has a loophole for fraudulent income declarations and might result in double taxation.

The practice of recording a lower sale price than the actual price in property sales-purchase contracts/agreements remains common. The penalty (equal to 20 percent of the under-declared tax value) is too low and not strong enough to punish law violators.

The regulation on authorized real estate transfers also has loopholes that might result in tax evasion.

The tax authority needs to control the declaration of two prices in real estate transactions to minimize personal income tax evasion

Law amendment

The Personal Income Tax Law needs to be revised and supplemented to address the above-mentioned and other shortcomings.

Specifically, instead of applying a fixed tax rate equal to two percent of the property transaction’s value, a progressive tax schedule should be developed, and the larger the transfer value, the lower the tax rate should be. The costs incurred by property owners, such as transaction fees, registration fees, and repair costs, should be accurately and flexibly calculated. Upon real estate transfer, taxpayers should be allowed to deduct these expenses, as this reduces their tax burden without diminishing state revenue.

The would-be-amended or draft Personal Income Tax Law should include mandatory regulations such as requiring the property buyer to pay the seller through a bank, rather than using cash. The tax authority should develop a real estate market data system to objectively and accurately assess transaction values. Furthermore, mandatory regulations should require all real estate transactions to go through official exchanges. This would increase market transparency, ensure that prices are publicly available, and make it easier to control.

According to lawyer Tran Xoa, Director of Minh Dang Quang Law Firm, the tax authority needs to control the declaration of two prices in real estate transactions to minimize personal income tax evasion. She suggested that the Ministry of Finance and the General Department of Taxation propose amendments to related regulations.

Reforming real estate transfer taxes is a necessary step to ensure fairness, transparency and effectiveness in tax management. The new draft Personal Income Tax Law, with its specific and detailed provisions, is expected to establish a solid legal foundation for these reforms. However, for successful implementation, close coordination among authorities and the cooperation of the public are crucial. /.