Real Estate Tax 20%: Will Housing Prices Increase, Making Homes Less Accessible To Buyers?

Current Situation And Proposed Real Estate Tax Calculation

 Currently, the Ministry of Finance is researching two main methods for calculating personal income tax (PIT) on real estate transfer activities. The first option is to calculate the tax on the actual profit (selling price minus related costs) with a projected tax rate of 20%. The second option is to apply a fixed tax rate of 2% on the total transfer price in cases where the purchase price and related costs cannot be clearly determined.

In fact, this 20% tax proposal is not a new idea. The 2007 Personal Income Tax Law once stipulated a 25% tax rate on profit, or 2% on the transfer price if the cost basis and expenses could not be determined. However, due to difficulties in verifying these factors, since 2015, the tax rate has been fixed at 2% on the total transfer value and has been applied to date.

Shortcomings Of The Current 2% Tax Rate And Expectations From The 20% Rate 

Despite its simplicity, the 2% calculation method on the total transfer value has revealed significant loopholes. Typically, sellers may declare a lower transfer value to reduce their tax obligations, leading to state budget revenue losses and distorting the real estate market. Moreover, many experts believe that this method lacks fairness as sellers still have to pay tax even if they incur losses. Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), affirmed: “Personal income tax is based on the principle that only those with income (i.e., profit) pay tax. The current regulation that requires sellers to pay personal income tax even when breaking even or incurring losses is unreasonable.”

In the current context, the proposal to collect tax based on real estate transfer profits has resurfaced. The Ministry of Finance stated that as of 2018, transaction data, including the transaction history of the land parcel and the taxpayer, can be looked up. Therefore, returning to the method of calculating tax on profit is considered closer to the essence of personal income tax, taxing actual generated income, aiming for greater transparency and fairness in the market.

Challenges And Potential Repercussions Of Applying The 20% Tax 

Despite its theoretical advantages, applying the 20% tax rate on profits also poses several significant challenges:

• Difficulty in determining costs and cost basis: The Ministry of Finance also admits that accurately determining the profit still presents many challenges. The transfer price recorded in the contract may not necessarily reflect the actual value. Furthermore, many costs such as brokerage fees, loan interest, compensation, or the value of real estate acquired long ago or received as a gift… are very difficult to clearly determine for calculating the cost basis. Mr. Hoang Kim Hoai, General Director of Phuc Dien Land, emphasized: “Relevant authorities need to clearly define deductible expenses and conditions for invoices, documents, and the cost basis of transferred real estate. Additionally, it is necessary to accurately and fully account for arising expenses such as bank loan interest, brokerage fees, inflation adjustment, and real estate renovation costs before transfer.”
• Risk of pushing up housing prices: Ms. Tran Thi Cam Tu, General Director of EximRS, warned that if these costs are not fully accounted for, sellers may “include this tax amount in the selling price, shifting the cost to buyers, causing real estate prices to continue to rise, making housing less accessible for buyers, and making it harder for businesses to find an outlet.” This would create a new burden for the public and businesses, especially as the real estate market continues to face many difficulties.
• Complication of the tax calculation process: Accurately determining expenses to calculate profit will require a thorough and systematic process of building a database and accompanying regulations. Ms. Tu believes: “To achieve transparency, a process is needed to build relevant data and accompanying regulations.” Without adequate preparation, applying this method could lead to disputes or higher-than-expected tax assessments.

Analysis Of The Impact Of 20% Tax Versus 2%

 Ms. Tran Thi Cam Tu provided a specific example of the impact of the proposed 20% profit tax compared to the 2% total transaction value:

• Beneficial for investors: If the profit is low or even a loss, the 20% tax on profit could be lower than or equal to 0, in contrast to the 2% tax on the total transaction value regardless of profit or loss. For example: Selling real estate for 5 billion VND, purchased for 4 billion VND with related costs of 800 million VND, the new tax calculation would be (5 – 4.8) billion VND x 20% = 40 million VND. Meanwhile, the old tax was 5 billion VND x 2% = 100 million VND. This method would encourage long-term investment, reduce speculative trading, and help make the market more transparent.
• Disadvantageous: Conversely, in the case of a large profit, the 20% tax could be significantly higher than 2%. For example: Selling for 10 billion VND, purchased for 4 billion VND, the new tax = (10 – 4) billion VND x 20% = 1.2 billion VND. Meanwhile, the old tax was 10 billion VND x 2% = 200 million VND. This situation makes it difficult to prove costs such as brokerage fees, loan interest, inheritance… leading to disputes or higher-than-expected taxes.

Recommendations From Experts 

Experts generally agree that the application of new tax policies needs to be implemented cautiously and systematically:

• Need for accurate and complete calculation: Mr. Le Hoang Chau emphasized: “When developing the 20% profit calculation method to determine the taxable amount, factors such as inflation adjustment, construction investment costs, etc., of the real estate must be considered. To do this, the state must be able to calculate the legal, reasonable, and valid expenses of the landowner.”
• No rushing: Both Ms. Tu and Mr. Hoai share the view that the 20% tax rate on real estate transfers cannot be hastily applied, as time is needed to build a database related to real estate during transfer.
• Consider market context: Given the recent difficulties in the market, real estate investors and businesses hope that new policies will consider the context of their issuance to avoid negative impacts.
• Prioritize individuals with genuine housing needs: Using the difference between the purchase and sale price to calculate tax would not be reasonable if people buy real estate for actual living or production needs, not for real estate business, and only transfer the land use rights decades later.