Real Estate Tax Evasion: Proposal To Tax 20% On Transfer Gains

At the conference “Personal Income Tax Law – Ensuring Fairness, Promoting Growth” co-organized by Lao Dong Newspaper and the National Economics University, an important proposal was put forward to address the issue of tax evasion in real estate transactions. Assoc. Prof. Dr. Phan Huu Nghi, Deputy Director of the Banking and Finance Institute of the National Economics University, emphasized the role of revenue from real estate transfers in the current personal income tax system.

Current Situation And Shortcomings Of Existing Real Estate Tax

Mr. Nghi pointed out that the current method of calculating real estate tax has many shortcomings, affecting fairness and transparency. According to current regulations, real estate sellers only have to pay a tax rate of 2% on the total transaction value stated in the contract.

Although this method is simple for tax collection, it creates a large loophole for buyers and sellers to declare transaction values much lower than the actual price. This leads to tax revenue loss for the State and makes the real estate market less transparent, creating conditions for “dual-pricing” transactions.

New Proposal: 20% Tax On Real Estate Transfer Gains

To overcome the above situation, Assoc. Prof. Dr. Phan Huu Nghi proposed a breakthrough solution: applying a tax rate of 20% on the difference between the purchase price and the selling price of real estate.

Benefits of this proposal:

• Accurately reflects actual income: The new tax calculation method will more accurately reflect the actual income that the seller receives from the real estate transaction.
• Prevents tax evasion: Taxing profits will eliminate the incentive to declare prices lower than the actual value to evade taxes.
• Increases market transparency: Real estate transactions will become more transparent when the actual value is clearly reflected.

Challenges When Applying A 20% Tax On Gains

Assoc. Prof. Dr. Phan Huu Nghi also pointed out some difficulties that may arise when implementing this proposal:

• Determining the initial purchase price: Determining the initial purchase price for transactions that occurred many years ago or for inherited or gifted assets may be difficult.
• Proving renovation and repair costs: Sellers may have invested in renovating and repairing the property, but proving these costs to be deducted when calculating taxes will require clear regulations.

Solutions And Feasibility

However, Mr. Nghi is also optimistic that the tax authorities and the Ministry of Agriculture and Rural Development have sufficient data on real estate purchase and sale prices to serve tax calculation. Therefore, controlling transfer prices is entirely feasible by cross-referencing with actual data.

In addition, Mr. Nghi also pointed out that buyers intentionally declaring low prices to evade taxes at the time of purchase will be disadvantageous to them when reselling. They will have to record a purchase price lower than the market price, leading to a higher tax payable in the subsequent resale transaction, especially when the subsequent buyer does not agree to the “dual-pricing” sale.

Positive Impacts On The Real Estate Market

The application of a 20% tax on the purchase-sale price difference needs to be accompanied by strict penalties for misreporting prices. At that time, the real estate market will become more transparent, limiting the “dual-pricing” situation, and helping the State collect taxes more fairly.

In particular, the situation of pushing up housing prices by brokers and roundabout transactions will also be maximally limited. Strict taxation on added value will force real estate companies to consider more carefully when setting selling prices, thereby helping the market operate more transparently and substantively.

Assoc. Prof. Dr. Phan Huu Nghi’s proposal to tax 20% on real estate transfer gains is an important step towards addressing the shortcomings in the current tax system, aiming for a more transparent and fairer real estate market. The successful implementation of this proposal will contribute to increasing revenue for the state budget and limiting tax evasion, while stabilizing and sustainably developing the Vietnamese real estate market.