LITERATURE REVIEW AND THEORETICAL FRAMEWORK
Literature review
These are a number of research related to state budget involves solution to budget deficit, public debt These concentrate into allocation expenditure, budget deficit, public debt status as well as solutions Although there have had researches legal framework of land in Vietnam, evaluating revenues of the new land tax and old system and suggest property tax reform
Trinh, H.L (2012) researched property tax reform in Vietnam, specifically focused on the changing progress given that land law in Vietnam has always been considered to belong to the State and the shifted to reforming the real property tax from the largely based on rice productivity to one base on ad valorem principles
This paper reviews existing property-based taxes, highlighting their weaknesses and outlining the potential for a land tax to effectively replace the current property tax
In detail, this paper reviews land and land ownership in Vietnam to 2012, several different ministries are involved in the regulation and use of land The underlying concept off land ownership is the foremost determinant of the land policy system in Vietnam In the absence of private ownership, land is regarded as an asset of the population Individual members off society as natural or legal entities have only land-use-related rights In addition, it is understood that land use right in Vietnam are a private asset, protected by the civil code Even if full individual property rights do not exist, there is a legal market for land use rights Which has prompted the Vietnamese government to move towards a market economy and to reform its real property taxation system and align it with international standards In analysis of property tax reform in Vietnam, the market-based ad valorem property tax that includes within the tax base all land and buildings would prove a major challenge for Vietnam, for several reasons First, the property market has not reached a sufficient level of maturity to provide the necessary transactions upon which to create a value-based property tax Second, the infrastructure, in terms of a valuation/appraisal profession and associated university programs delivering appropriate real estate course, has yet to be developed
McCluskey W.J & Trinh, H L (2013) analysed current land based revenue sources and concludes that these sources are unsustainable, lack buoyancy and represent a downward revenue base Group author advocates payable property tax bases on land value empirical analysis, in other word, the value gain through effectiveness using At the same tine, they provide several evidence that the government's proposal for a land based tax has several structural problems that will directly affect revenue buoyancy However, by identify structure problems, which affect provincial and local government finance The proposed land tax is at least a positive and important step in developing a sustainable revenue source for city and local governments The research supports the government‘s proposal towards the development of a land tax
Besides, the paper simulates comparasion the revenues of the new land tax and old system Their results record an upward trend by 0.02 percent from 0.06 percent to 0.08 percent of GDP in 2008, assuming a 60percent revenue collection level In addition, given the fixed nature of the tax rates and land value tariffs, nominal revenue as a percentage of GDP declines in the following years The desirability of an adjustment to the current tax reform comes from stabilizing revenues, which are currently still declining, by addressing several structural problems that will directly enhance revenue buoyancy The choice of a land tax is in many respects the optimal choice, and the revenue performance is modest but has room for future growth
In two researches in 2012 and 2013, the authors reviewed Constitutions from 1946 to 2012, in which first Constitution issued in 1946, the data tax revenue valid to analysis until 2008, the square of land and share of land catergories updated until
2010 Methodology used all is qualitative method that review law and logic analysis
Workshop on "Applicability and impact of property taxes in Vietnam" 3 , experts, policy critics shared the view and discussed that the improvement of Vietnam's budget should be rooted in cost savings – experience side, not the increase in revenue, criticism, and difficult collection, in detail:
From statistic of world experience, property tax contributed significantly to the national budget, especially in developed countries But the tax property is complex as well as hard to implement efficiency and raising corruption ―The world has been debating this tax for hundreds of years and so far, countries that have actually applied taxes on assets show that this tax is very complicated, implementation is not easy and not effective ‖
Property taxes have a significant impact on household spending and consumption
By calculated and predicted according to Ministry of Finance‘s proposed options, the result is Gini coefficient (indicating the inequality of income distribution among economic individuals in an economy) decreased by 0.65%, but disposable income decreased by 0.9 %, actual spending decreased by 0.7%, and the poverty rate remained unchanged Although the inequality index (Gini) improved but mainly because the rich were poorer, it was not because the poor‘s living standard improved higher Therefore, if public spending does not promote social welfare and productivity, it is not a sustainable tax law
Worldbank (2011) analyzed the economics of property taxes, the research points out reason for separate analyses of Taxes on Land and on Improvements A property tax is a combination of two taxes, the same tax rate is generally applied to both components of the tax bases, but it is possible to have different tax rates on land and improvements, at the same time, some places record different rates
There are different between land tax and improvement tax in term of administration
The proper taxation of improvements requires continual on-site evaluations that are somewhat subjective and open to corruption Land values in other sides, are much
3 December 12 th 2018 at Hanoi Union hotel more objective, transparent, and easy to assess, because they are generally smooth functions of location Therefore, it should be divided into two taxation analysis, first is tax on natural opportunities and other is tax on humanly produced capital improvements
This research mentions to efficiency of land taxes: raising substantial government revenue without burden, as well as offset other circumstances that generate economic inefficiency When properly administered, a tax on land has not gotten inefficiency, or ―excess burden‖ into an economy Thus, whenever a nation or a commune replaces a revenue source that has an excess burden with a tax on land, the overall efficiency of the economy improves In order to have no excess burden, the tax must be independent of how productivity the land is used and the tax must not be greater than the value of using the land If these two conditions are met, then all land can be used productively will continue to be used when the land is taxed, and the land owner will continue has motivation to use it as productively as they can Moreover, enforcement and compliance costs of land taxes are minimal These only involve maintenance system, frequent and transparent assessments, sending bills, treating with violence activities
The higher rate of land taxation, the less rewarding land speculation is In case of higher land tax, which reduces land speculation, tends to reduce premature conversion of agricultural land to development uses Speculation is reduced or eliminated because of a high land taxes, the most value sites are developed rapidly when land is taxed heavily, leaving little or no market for the development of those that are not rip for development
Other side is offsetting public service costs and maintaining reduced poverty
Because property tax on improvements can have a significant excess burden, it should be much lower tax rate on land compared with tax rate on improvements
There are two reasons why a tax on improvements should be included in a package of efficient sources of public revenue Firstly, government needs budget for public services such as police, courts, national defense and diplomacy to protect improvements It is suitable when using property tax on improvement revenues in state budget to make payment for these public services Secondly, property tax on improvements wish to levy a tax on improvements is to erode the wealth of the wealthy If a tax on improvements simply compensates for the cost of protecting additional improvement, then there is no excess tax burden
In reality, Vietnam Ministry of Finance (2018) published statement which give the ideal the necessary of reforming property tax, namely to adjust the tax payable in land using term and add revenues from other property such as building, plane, yacht This statement used data from 2012 to October 2017 because the data update until October 2017 and 2012 is when begin apply non-agriculture land use tax – a mainly kind of property tax in Vietnam now It also pointed out several basic reasons First, International experience shows that property taxes are an early tax in the tax system of most countries around the world, especially in developed market economies There are currently 174/193 countries that collect property taxes (annual tax, during the use of assets) with many different name, Subjects subject to property tax in countries mainly are land and houses Second, property taxes in countries represent an important role in the total revenue of countries, accounting for an average of 3-4% of the total tax revenue in developed countries, some of which are up to 8% like Japan In developing and transition countries, this rate is lower
Theoretical framework
The foundation theory of stabilizing state budget will introduce to show the role, relation tax policy in state budget Besides, this part review taxation theories have applied to analyse, implement , design legal framework of property tax in the word, namely optimal taxation and land tax By doing so determine factors affecting tax revenues, then guide solutions to optimize the revenues in current regulations and aim reforming in near future
1.2.1 Definition and role of balanced-budget
The balance budget in which receipts equal expenditure or a situation in financial planning or the budgeting process where total revenues are equal to or greater than total expenses A budget can be determined balanced after a financial year‘s worth of revenues and expenses have been incurred and recorded But it is hard to get balance or complete balanced is impossible, the government attempts to optimal fiscal policy, namely call for budget deficit and budget surplus (Mankiw, N.G
2010) The term budget surplus occurs when revenues exceed expenses, and the surplus amount represents the difference By contrast, budget deficit is the result of expenses over revenue
There are three options for closing budget deficits, the state can raise taxes, reduce spending, or change ―budget execution‖ to close the apparent deficit (Jame M
In optimal fiscal policy, a budget deficit or surplus can help stabilize the economy
In case an economy goes into a recession, taxes automatically fall, and transfers automatically rise Although these automatic responses help stabilize the economy, they push the budget into deficit A strict balance-budget rule would require that the government raise taxes or reduce spending in a recession, but these actions would further depress aggregate demand Besides, these can be used to reduce the distortion of incentives caused by the tax system
1.2.2 Condition for sound budget balance 4
State balanced-budget when revenues equal expenditures, but in fact, the absolute balance never happens, because absolute balance is not final goal, insteadly, government will adjust the use of state budget depending on the objective - optimal fiscal policy in other word However, they attempt to keep these gap is not
4 Author summarized from the dissustion with Professor Koji Fujimoto in December 2018 And documents prepared by Professor Fujimoto for Class 3: Macroeconomic policies in Developing countries Development Finance subject, Vietnam Japan University. dramatically, state budget deficit exceeds safety level and not affects to macroeconomics stability
There are two basic ways to help regulate the budget, which is to reduce expenditures and increase revenues In terms of spending, in order to decline expenditures, projects are required reasonable and effective from planning, implementation, control and evaluation
At revenue sides, in order to increase revenue, the government can borrow foreign debt, issue bonds and increase tax revenue here exclude the government directly involved in economic activities (Eshag, E 1983); government just keep roles what regulate and control the economy In other sides, in order to tax revenue records upward trend, government could increase tax payable by expanding taxe base, enacting new tax laws; However, government not only raise tax burdens, but also make efforts from the collection process, to real revenues close upto potential revenues at maximum
Optimal taxation system theory: When the policymaker formutates tax policy to increase revenues of state budget, it is based on the theory of optimal taxation system and policy objectives
A optimal tax system is the set of taxes which maximizes social welfare, one of the objectives of optimal tax theory is to determine whether there are some general properties of all Pareto efficient tax systems that is properties which hold regardless of the social welfare function (Stiglitz, J.E 1987) And a social welfare function bases on the utilities of individual in the society Generally, the optimal taxation theory points out that a stable tax base allowing to wide tax base, low tax rate, simply implementation
In theory, there is no complete perfect tax system While policymakers analyse, formulate any tax policies, they need considering four goals: The whole tax system where more efficiency or not? The taxation will remain social equity or not? Is it increase revenues in state budget? Is it impossible in implementation?
1.2.3 Determinants of stabilizing state budget in terms of tax
The concept of macroeconomic stability include not only price stability and sound fiscal policies, but also a well-functioning real economy, sustainable debt ratios and healthy public and private sector balance sheets The stability ralates to countercyclical macroeconimic policies including exchange rate, monetary, fiscal; and with capital management techniques together like capital account regulations and pridential rules incorporating macroeconomic dimentions; as well as the role of international financial institutions (Ocampo, J.A 2008)
Fiscal stabilization operates mainly through automatic stabilizers It can contribute to macroeconomic stability through three main channels involves: (i) The automatic reduction in government saving during downturns and increase during upturns, cushioning shocks to national expenditure; (ii) Government can change public spending and tax instruments to offset business cycle flutuations; (iii) the structure of the tax and transfer system can be designed to maximize economic efficiency and market flexibility, thereby enhancing the resilience of shocking in economy (Debrun, M X., & Kapoor, R 2010)
Taxes are one of the sources of government and local revenue, used to pay and provide public services Based on the status of the macro-economy, the socio- economic situation, the payment balance, the government will adjust the fiscal policy in order to reach the goals Tax is neutral and should be reported, accountability ensures transparent and can be monitored
International intergration affects the number of tax revenue The government participates in free trade agreements, thereby gradually reducing tariffs to reduce tax revenues from customs On the other hand, partner countries that are mainly developed countries could regulate tariffs (anti-dumping tariffs) or quotas that will affect the exporting country, changing the balance of payments, affect to macroeconomics stability
Property tax is revenue of local government, although in OECD developed countries account for less than 3 percent of GDP (McCluskey W J & Franzsen
R C 2017) but plays an essential role to pay local public services, offset the central budget
The requirements of a good tax structure are generally associated with a good tax applying to taxes in general and regard to property taxes, including (McCluskey, W
J., & Franzsen, R C 2017): i In Canon of Equity: the distribution of the tax should be equitable, in other words every taxpayer should be expected to pay a fair share of the tax ii In Canon of Fairness: the tax structure should endeavor for fair and non- arbitrary administration It should also be understandable to the taxpayer iii In Canon of Economy: when compare to the revenue collected, the administration and compliance cost of a tax should be as low as possible – in other words it must be economical to collect iv Tax obligations should be bases on benefit receivable from the enjoyment of public services v In Canon of Convenience, tax should be levied at the time, or in the manner that is most likely to be convenient for the taxpayer vi And taxation should as much as possible avoid creating ―excess burdens‖ that would interfere with the efficient functioning of the host market
The most important issues impact to tax collection process involves information, data and collection implementation (Rosengard, 1998), in detail:
Information and data: i To identify and describe the property ii Property valuation; Determining the valuation value and accounting of tax obligations Implementation of collection: i To prepare and issue tax invoices ii Payment of tax collection iii Enforcement those cases that do not voluntarily comply
It means that in order to tax collection process get highly effectiveness, the system of information and data of land resources play a key role
1.2.4 Property tax versus state budget – relation
STATUS OF STATE BUDGET AND LEGAL FRAMEWORK OF
Status of state budget in Vietnam
2.1.1 Overview of state budget revenue sources
According to law of state budget in Vietnam (2015), state budget revenues involves 6 : i Taxes are paid by organizations and individuals according to tax laws ii Fees paid by organizations and individuals according to law provisions iii Fees collected from service activities implemented by state agencies; In case of contracting operating expenses, they are deducted iv Charges collected from service activities performed by public non-business units and State enterprises, after subtracting the deducted fertilizers to cover expenses according to law provisions v State budget remittances from the State's economic activities vi Mobilize contributions from agencies, organizations and individuals according to the provisions of law vii Revenues from the sale of state assets, including revenues from the transfer of land use rights and land use purpose changes, managed by State agencies, units and organizations viii Land use fees; land and water surface rent; money to use the sea area; rental money and sale of state-owned houses ix Revenues from property established by the State; collection of mineral exploitation rights, collection of water exploitation rights x Proceeds from the sanctioning of administrative violations, fines and other confiscation according to the provisions of law
6 Vietnam Government (2016), Decree 163/2016/ND-CP, Decree detailed provisions for the implementation of a number of articles of the state budget law xi Voluntary contributions of domestic and foreign organizations and individuals xii Non-refundable aids of the Governments of other countries, organizations and individuals to the State, the Government of Vietnam and local state agencies xiii Revenues from the financial reserve fund
2.1.2 Vietnam budget trend and budget deficits situation
Fiscal policy has an important role in stability and economic growth, however, there are always conflicts between spending needs and budget resources While the possibility of state budget collection is always constrained by various factors and difficult to go up, thus, securing the state budget balance has become a big challenge for the Government of Vietnam
Figure 2.1: The scale of budget revenues and expenditures balance with GDP in
(Source: Author calculated from GSO’s data)
In the recent period the pressure on expenditure led to pressure on revenue increase to ensure the stability of the state budget Because the pressure to reduce budget
7 In 2017 is estimated data revenue in the coming period will mainly come from the current budget-related policies that have not created sustainable revenues Although the tax revenue has continuously increased in the period of 2011-2016 (Figure 2.1), the proportion of tax mobilized from this period is only 76.1% of the total state budget revenue equivalent to the rate of the period 1996-2000
Revenues from non-renewable resources such as land and crude oil still account for 20% of the state budget balance in the period of 2009-2013 and about 18% in 2014
High oil prices can help the state budget exceed the estimate As in 2012 (reaching 166% of the estimate) it will also make the state meet difficulties today (in 2015 it is estimated to reach only 65% of the estimate of crude oil revenues)
Figure 2.2: The budget deficit in 10-year period from 2007 to 2017
Figure 2.2 describes the structure of revenues in state budget, it recorded an upward trend; revenues from land, houses and accounted for significant propotion in general state budget revenue, namely 11.99% in estimate date 2017 During given period, the rate increased by 4.6% from 7.39% However, the reason of upward trend also is ubanization, land owners pay transfer using purposes In other revenues parts, revenues maily collected from foreign enterprises, trading It is the result of attracting foreign investors have joined in Vietnam market and whole economic development, the total of these amounts is estimated at 2017 accounting for 19.53%
2.1.2 Structure of revenues in Vietnam state budget
In practice, figure 2.3 gives clearly information about the proportion of revenues in the state budget
Figure 2.3: The structure of revenues in Vietnam state budget from 2012-2017 8
(Sources: Vietnam GSO, 2017 is estimated data)
These source revenue from state owner enterprises, crude oil, customs recored downward trend compared to previous years, because of equitization of state-owned enterprises In the budget structure in Vietnam, state-owned enterprises contribute significantly to the budget, however, they have gradually limited their participation in economic activities according to orientation reforming of government In addition, the revenue from natural resources is decreasing because this is a non- renewable energy source and has been exploited for a long time, the current reserves have been reduced, so the exploitation limit have been narrowing Revenue
Revenues from non- refundable aid Revenue from customs Revenue from crude oil
Revenue from state owner enterprises from foreign trade, customs fall because of international intergration Vietnam paticipates in trade agreements that commit reduce import tax on schedule, thus, this revenue will dramatically decrease in the following time
Revenues from land, houses accounted for 11.99% (estimated data) in 2017 At the same time, which involves both property tax and fees The property tax revenues accounted for average 0.15 percent in total revenue of state budget The number of collection result was not dramatically after 5-year implementation, but there is room to increase in the next time In current regulations on property taxes, Vietnam has just started research since 2010 and has been implement for six years, from 2012 by have applied non-agricultural land use tax Both the tax base and the applied tax rate are still low for people to be familiar with the newly issued tax.
Legal framework of revenues of property tax in Vietnam
In Vietnam, there are several revenues from assets in state budget, including three groups: The State has enacted the following property-related revenues that cover activities related to the establishment of ownership and use rights; in the use process and when transferring assets But only revenues in the use process is taxation, other is fees due to land ownership rule At the moment, property tax in Vietnam involves (i) Agriculture land use tax; and (ii) Non-agriculture land use tax
2.2.1 Agriculture land use tax law
In Vietnam land law (2013), agricultural land includes: i Annual crop land includes rice and other annual crop land; ii Land for perennial crops; iii Production forest land; iv Protection forest land; v Special-use forest land; vi Aquaculture land; vii Salt land; viii Other agricultural land includes land used for the construction of greenhouses and other types of houses for cultivation purposes, including non-direct cultivation on land; build cages for cattle and poultry breeding and other animals permitted by law; land for cultivation, husbandry and aquaculture for study and research purposes; land for planting seedlings, breeds and land for planting flowers and ornamental plants;
The agricultural land use tax was first introduced in 1993, all organizations and individuals which use land for agricultural production are covered in this law In other words, that applies to the purpose forest, cultivation, aquaculture and agriculture land economy allocated
The tax base included three original components: land size, land categories, tax liability according to each category in the regulations In addition, the basis for calculating agricultural land use tax is area, land class and annual tax rate calculated in kilograms of paddy per unit area of each land class
Tax exemption and reduction policies apply for reclaimed land in specified in the law In line reforming trends to reduce tax burden on agriculture economy propose to abolish tax collection in the draft law
Taxable price: basing on productivity
Tax rate: The law classifies base on five physical characteristics following location, climatic condition, irrigation, and fertility in order to formulate six categories for annual harvest and aquaculture; five categories for long tem production land
In the Article 8 of Decree 74/CP in October 25 th 1993 declared: ― The annual harvest relates to short-term seasonal agricultural production Long-term production is related to recurrent crops that do not require replanting annually such as palm oil
There are three fundamental components of the tax base: the land size, the land categories, and tax liability applied to each category The law stipulates six categories for annual harvest and aquaculture land and five for long-term production land The land classification is based on five physical characteristics, which include land fertility, location, climate conditions, and irrigation.‖
Table 2.3: Tax categories of agricultural Land Use tax
Land for annual harvest and aquaculture (kg of rice/hectare)
Land for long-term production (Kg of rice/hectare)
(Source: Vietnam government (1993) Decree 74/CP)
Collection: Tax is paid annually from one to two times according to the main harvest for each crop in each region
2.2.2 Non-agriculture land use tax
This law puts a tax on non-agricultural land using excluding agricultural land and construction on land
Tax base: is determined by square and price tax calculated There are two land categories in tax objects: i Land in rural area, land in urban area; ii Land for production and business which is non-agricultural purpose including: industrial zone land; land for construction of production and business; Mineral exploitation and processing land; Land for production of construction materials and ceramics
Tax exemption: The following soil types are not tax payable, except for production and business purposes i Land uses for public purposes included: traffic and irrigation land; land for construction of cultural, medical, educational and training and sport facilities for public purposes; land with historical-cultural relics, scenic spots; and other construction land according to government regulations ii Land used by religious orgnization iii Land for cemeteries and graveyards iv Rivers, streams, canals, streams, and specialized water surfaces v Land with buildings is communal houses, temples, shrines, pagodas, worship houses and churches vi Public land where construction of public agencies, public works, land used for national defense and security purposes vii Other non-agricultural land as prescribed by law
Moreover, to get the social objects, the regulations also exempt for disabled people, elderly people without support; priority family objects; people with meritorious services to the revolution
Another purpose is encouraging more investment, thus the law exempts tax for investment projects in geographical areas with difficult economic conditions;
Welfare line such as health and education
Taxable price: Land prices for calculation of non-agricultural land use tax are land price for use purposes promulgated by provincial-level People's Committees according to every five years
Table 2.4: The tax rate of non-agricultural land use tax
The excess area must not exceed 3 times the limit 0.07 The area of the area exceeds 3 times the limit 0.15
(Source: Vietnam Congress (2010) Law No.48/2010/QH12)
The limit is setted by the provincial People's Committee Tax rate of 0.03% for land of apartments and underground ground construction; Non-agricultural production and business land; Land belongs to registered investor projects and approved by competent state agencies
The rate of 0.15% applies for land used improperly, unused land in accordance with regulations
Land encroachment and land use levy at the rate of 0.2% at the same time do not apply limits and tax payment is not a basis for recognizing land use rights with an area of encroachment or occupation
Collection: Annually, As a Vietnam regulation, the owner who has several land parcels have to pay registering, declaring, calculating and paying taxes for each parcel of land with local ownership In addition, the taxpayer must also make a general declaration of all land in area in which taxpayers choose to determine the taxable land limit After subtracting the tax amount already paid in the localities where the land use right is located, the remaining difference will be paid in the locality where the taxpayer has chosen The regulation aims to limit the restrictions on land speculation leading to abandonment and waste of land.
Results of property tax implementation
2.3.1 Non-agriculture land use tax
2.3.1.1 Non-agriculture land use tax: Results of tax revenues
In government's report, the non-agricultural land use tax recorded an average revenue of about VND 1300 billion per year, an average increase of 1.3% From
2012 to 2016, revenue accounted for an average of 0.15% of total state budget revenue, equivalent to about 0.3% of local budget revenue
Although the amount of land use tax is not large amount, in recent years it is a stable and regular source of income, contributing to mobilizing land users' contributions to the state budget, creating revenue sources for local budgets to perform the spending tasks of the local state budget 9 Besides, this also sever better managing requirements and monitoring macroeconomics To increase fair policies among classes in society, funding of land management, then, contributing to the local spending
Table 2.3: Revenue of non-agricultural land using tax (2012-2017)
In the draft Law on non-agricultural land use tax in 2010 estimated that the non- agricultural land use tax revenue reached about VND 1,696 billion, including revenue, from residential land and from production and business land respectively 1,258 billion and 438 billion These estimates based on government land prices
(2008) 11 ; and taxable land area according to the 2005 land inventory result 12 After
9 Government report (2018) – Summarize and evaluate the situation of implementing the collection policy related to assets
11 Vietnam government (2007), Decree 123/2007 / ND-CP dated July 27, 2007 amending and supplementing Decree No 188/2004 / ND-CP
12 Vietnam government (2007), Decision No 272 / QD-TTg dated 27/2/2007 on approval of land inventory results in 2005.
5 Percentage of total state budget revenue (%)
6 Percentage compared to domestic collection (%)
7 Percentage compared to local budget revenue (%)
0.3% 0.37% 0.37% 0.32% 0.25% 0.25% five years of implementation, the result achived lower than estimated, the average annual revenue is VND 1,310 billion, equivalent to 0.14% of the total state budget revenue - a very small and insignificant revenue figure Similarly when comparing the budget contribution of total assets and regular revenues from assets Moreover, the area of non-agricultural land wider and wider due to convert using purpose, therefore, the actual revenue obtained is lower than the potential
2.3.1.2 Non-agriculture land use tax: tax collection results
Information and data: Applying to apply information technology in tax administration to create information data: i Scope: nearly 700 districts ii Number of taxpayers: More than 17 million people iii Personal ownership (nearly 18 million plots ~ more than 46.2 billion m2);
Ownership of the organization (nearly 80,000 land plots ~ more than 1.2 billion m2) iv To issues 14.1 million new tax codes and reconfirm 2.3 million for non- agricultural land users v However, the management system by technology when exporting data has not met the demand for reporting, so it is necessary to improve the forms
The data of taxpayers is still updating but not yet completely vi The complex tax exemption regulations and required documents also lead to the management process more difficult to monitor
Implementation of collection: i Management office‘ government: Training to improve professional skills for tax official‘s employee Procedures under the one-door mechanism (procedures are handled with a tax officer, making it more convenient for taxpayers) ii Propagate and guide taxpayers iii ―Tax books‖- for each tax payables are prepared and monitored annually to manage change and control iv The issuance of tax codes is carried out at the same time with the import data process from tax declarations to ensure sufficient and timely data updates and avoid lacking information v Registration tax and payment creates conditions for taxpayers to own many land plots Taxpayers make a declaration with each local land plot, then make a general declaration in a main locality that they choosen, the difference will be paid in this locality
2.3.2.1 Agriculture land use tax: Result of tax revenues
According to current appling regulations (at June 2019), Resolution 55/2010 / QH12 is amended and supplemented by Resolution No 28/2016 / QH13 on exemption and reduction of agricultural land use tax applied from 01 On January 1,
2017, this agricultural land use tax exemption and reduction policy is applied until December 31, 2020
Table 2.4: Revenue of agricultural land using tax (2007-2017)
Revenue (billion Dong) 113.0 97.0 67.0 56.0 72.0 69.0 69.0 61.0 58.0 60.0 39.0 Percentage of total state budget revenue (%)
The purpose of this tax exemption and reduction policy is to encourage investment in agriculture and rural areas; restructuring agriculture in the direction of large-scale commodity production, helping to improve Vietnam's domestic and international agricultural product competitiveness; encourage concentration and accumulation of agricultural land
From the data of General Statictic Office, the agricultural land use tax revenue has decreased gradually from 2007 to 2017, the rate in the state budget accounted for 0.02% on average - not significant
2.3.2.1 Agriculture land use tax: Tax collection result
- Tax declaration: Agricultural land use taxpayers shall submit tax declarations to local tax office; In cases where there is an increase or decrease in the area subject to agricultural land use tax in the year, taxpayers must submit tax declaration within ten days after the increase or decrease of the land area; In case of exemption from agricultural land use tax, taxpayers must still submit agricultural land use tax declaration dossiers and papers related to tax exemption determination of the first year of the tax exemption period
By tax declaration, the public management office could record and control land using Moreover, tax office has recorded the amount of tax exemption
However, the tax exemption according to Degree No 28/2016/QH14 applied from 01/01/2017 has affected to management process of agriculture land Because, it reduces the frequence of monitoring by government office when tax is a tool to manage agriculture land
In short, comparing the revenue of both non-agricultural and agricultural tax with the property tax results of developing countries analyzed shows that:
The average annual growth rate of 1300 billion VND, equivalent to 1.3% per year despite not falling like Jamaica but much lower than the Philippines and Chile increases of 4.0% and 4.4% respectively, expecially in Indonesia with 10.2% The proportion of revenue is insignificant in the total budget revenue (approximate 0.13% to 0.16%), compared with the three countries accounting for about 1% -3% of the total state budget revenue
Because the tax base classifies into land class and tariff schedule progresses, the tax rate is less changed during the period of data collection In addition, the area of non- agricultural land increased as a result of the urbanization process, land users converted land use purposes from agricultural land to non-agricultural land
Therefore, it can be speculated that the absolute increase in revenue will be lower, the increase in revenue is not due to the effect characteristic of the tax base but also due to the increase in taxable land area
EXPERIECES IN STABILIZING STATE BUDGET BY REFORMING
Taxation reforming objectives
Jamaica and Chile have similarities in the purpose of reform which reallocating real estate tax burden aims to a more fair tax system, purposes of Indonesia and Philipines is increasing tax revenue and the equity and effectiveness will be enhanced during implementation process
Objectives of collection process in Jamaica, Philipines is similary, namely the government enhance complete and accurate taxable objects database by comprehensive land reassessment and data collection Indonesia and Chilê concentrate conducting land assessment and collection process
In Philipines và Chile, government does not change current structure of regulations, but concentrate enhance implementation during reforming
Table 3.2: Reforming objectives in Vietnam and other developing countries
Country Scale in tax base Collection process Purposes Jamaica Completely new real estate tax system:
Tax base transfer to value of original land
Assessment transfer from self- declaration to outside assessment
The government enhance complete and accurate taxable objects database by comprehensive land reassessment and data collection
Prefer reallocating real estate tax burden aims to a more fair tax system The second objective is enhancing effective administration
Does not make specific plan which these revenue contribute to state budget
Indonesia Merge these kind related real estate
The equity and tax to one, thus hole administration system is under reforming collection process
Using propaganda to increase taxpayers‘ compliance effectiveness will be enhanced during implementation process
Phillipines Does not change current structure of regulations, but concentrate enhance implementation
The government enhance complete and accurate taxable objects database by comprehensive land reassessment and data collection
Chile Conducting land assessment and collection process
Using propaganda to increase taxpayers‘ compliance
Prefer reallocating real estate tax burden aims to a more fair tax system The second objectives is improving land using Setting up clearly increased revenue levels from reassessment in state plan
Vietnam Agriculture land use tax: From the process and policy reforming, It could be seen that the state has been encouraging agricultural and rural development in the direction of applying modern science and technology, cultivating in the direction of specialized cultivation It enhances the cooperation making connections between producers and market consumption
Non-agriculture land use tax: Have start applying a new tax in order to increase state budget 17
(Source: Summarized from Jay K.Rosengard (1998))
Taxation design
Jamaica records the most narrow tax base, by contract with Philippine has widest tax base In Jamaica, all orginal soil to be taxed and the government puts incentive tax into argiculture land and hotel business land In specific the regulations reduce 75% value for agriculture land 25% value for hotel business land in other words they collect tax base on 25% and 75% value respectively therefore it narrow the tax base Next the law of Indonesia Chile Philipines tax in both land and construction on land the propotion of land is taxed in Indonesia and Chile is 20% and 80% respectively Not only that Philipines imposes tax on value machine more
However like the case of Jamaica be narrowed tax base Philipines's regulation imposes progressive tariff schedule from 15% to 80%
The tax exemption including 2 groups:
The group of tax exemption completely: All countries exempts real estate non-profit using such as education medical.… from tax Besides excluding Jamaica mentioned 100% orginal land be taxed before in different level the remaining countries are exempted from tax for land or small-value works Prices vary in each country in Indonesia completely exempts construction on land in worth less than 1.899 USD; In Chile exempts completely for non-agriculture land from worth less than 15.735 USD
The group of partial tax exemption: In dificult areas new project investment project in agriculture and forestry
17 Vietnam National Assembly (2010) Law No 48/2010 / QH12 Tax law for non-agricultural land using
The tax exemption considered as a tool to reach aims of society and politics but it narrow the tax base could reduce revenue in economic sides It also make difficulty in administration and collection by incorrect classification value purpose of use
Table 3.3: Tax base in Vietnam and other countries
Jamaica All orginal soil to be taxed, tax incentive into argiculture land and hotel business land, namely tax base on 25% and 75% land value respectively
Vietnam Non-agriculture land use tax, land in rural and urban area, spatial and business land Tax exemption for public purposes, religion, graveyard, improvements on land
Indonesia Land and construction on land
(To exempt real estate non-profit using, project in remote area)
20% land value (To exempt for construction on land worth less than 1,899USD)
Chile 80% land value (To exempt for non- agriculture land from worth less than 15,735USD)
• Progressive tariff schedule from 15% to 80%
Indonesia put a tax on both land and construction at 0.5% Chile taxes same level at 2% add 30% sub other charge
In Phillipines and Jamaica using progressive tax regulation Specific in Philipines depending on purpose using land, the range of tax rate from 0.5% to 2%, and plus 1% value contribute to special education fund In Jamaica has fix minimimal level before applying progressive tariff schedules at first 6000 dolar Jamaica of land value the tax rate is 5 dolar Jamaica Then the rate runs from 1% to 3% Because of progressive tariff schedule and assessing the value to calculate tax payable, it presses to national assessment system as well as errors in classification and fixing value of land in order to reduce tax avoided Finally it reduces the revenue, effectiveness of tax system
Table 3.4: Tax rate in Vietnam and other developing countries
Vietnam Range from 0.03% to 0.2% on non-agriculture land Indonesia 0.5% on both land and construction on land
Fix: At first 6,000 dolar Jamaica of land value - 5 dolar Jamaica
The progressive tariff schedule and assessing the value to calculate tax payable press to national assessment system
Reducing the revenue, effectiveness of tax system
And plus 1% value contribute to special education fund
(Source: Summarized from Jay K.Rosengard (1998)) 3.2.3 Price Assessment
The assessment of value conducts every three years in Indonesia by state tax authority, Phillipines by local government In Jamaica, the value will be assessed each five years base on the market price The longest assessment period is Chile at every ten years compare with remaining countries However, that is still adjusting because the value of property associated with Consumer Price Index (CPI) and adjusted every six months
During implementation process, in case the assessment is complicated in developed countries like Canada has the broad of assessment included many professors, good administration to effective operation and maintenance
Table 3.5: Taxable price assessment in Vietnam and other countries
Indonesia Each three year by State tax authority Phillipines Each three year by local government Vietnam Each five year by Provincial People‘s Committee Jamaica Each five years base on the market price
Chile Each five years base on the market price;
And adjusted every six months according to CPI
(Source: Summarized from Jay K.Rosengard (1998)) 3.2.4 Collection process
Table 3.6: Tax collection process in Vietnam and other countries
12 months The local Treasury or
(Source: Summarized from Jay K.Rosengard (1998))
Using the automatic bank system has many advantages for collection process and administration By clearly contents of transaction saved in bank, the government, audit can easy to check, control easily with minimize cost as well as reduce corruption, collection fee and improve quality‘s public services That is proven obviously by case of Indonesia and Chile collecting by bank system compared with remaining countries namely Jamaica and Phillipines Thus, the effectiveness of collection process in Indonesia and Chile are better than Jamaica and Phillipines.
Taxation performance: effectiveness
During ten year applying, revenues each year in four countries tent to be different
The real estate tax revenue in Jamaica saw downward trend at average around 5.5% per year from 1980 to 1990 The revenue in Phillipines and Chile recorded growth each year 4.0% and 4.4% respectively Indonesia collected rising 10.2% each every year To compare four countries between real estate revenue and economic development effectiveness in ten-year period, the revenue in Indonesia was highest, by contract the lowest was Jamaica, the Phillipines and Chile were ranged in the middle position
To compare with total state budget revenue and Gross domestic production, the proportion of revenues was still not significant, namely about from 1% to 3% and under 1% respectively
Table 3.7: Tax effectiveness in Vietnam and other countries
Property tax revenue declines average 5.5% each year Vietnam Property tax revenue increases average 3.0% each year 18 Philipines Property tax revenue increases average 4.0% each year
To compare with GDP, proportion of revenues was still not significant, namely about from 1% to 3% and under 1% respectively
Chile Property tax revenue increases average 4.4% each year Indonesia Property tax revenue increases average 10.2% each year
(Source: Summarized from Jay K.Rosengard (1998))
The lesson learned from other countries
Conclusion, these analysises above gives information that regulation in different countries are similarly in tax base, incentives, exemption, tax rate, etc During implementation process, public employees have to face with a number of challenges there are formulation an effectiveness system maintaining revenues while try to be equity and sustainability
In comparasion with four countries, Indonesia has the lowest tax rate but the rate of revenue increase is most effective Chile and Indonesia are the two countries that perform the exam through the banking system get better collection effectiveness
Therefore, data and information system play an important role in collection effectiveness To make the most of collection system to maximize tax revenues, the
18 Caculated by author tax officials should applied, complete, enhance information system, by doing that, the data will update immediately in whole system from local to centre officials, be convenient for managenment process
Although the tax rate in Indonesia was lowest compared to three contries remain, the most effectiveness Indonessia was Thus, in chapter 4, when analyzing the solution increasing tax rate, this research takes hypothesis to rise at 0.5% in the next step reforming in Vietnam
The common difficulty, weakness in property tax are balance between expect revenues into state budget and social objectives; the tax base gradually narrow following timeline; corruption and administration challenge Therefore, to maintain and increase tax effectiveness, tax administration as well as assessment system play a key roles.
POLICY IMPLICATIONS FOR PROPERTY TAX REFORM TOWARD
To enhance collection efficiency
Agricultural land use tax is applying tax exemption regulations until the end of
2020, this work seeks a number of options in the short term after the exemptions and reductions are completed, the collection process is effectively implemented
Non-agricultural land use tax applied from 2012, the government issued draft law in on non-agricultural land use tax in 2010, estimated tax revenues of about VND 1,696 billion, including (1) Residential land: VND 1.258 billion, (2) Business and production land: 438 billion 20 Taxable land prices are calculated according to the land price list of the government at 2008 21 ; the taxable land area is calculated according to the 2005 22 land inventory results In fact, the average annual increase of VND 1,310 23 billion - lower than the lowest potential, while the area of non- agricultural land has also increased due to urbanization and non-agricultural land due to conversion of purpose land use.
4.1.1 Factors to improve tax collection performance
In order to tax collection get highest efficiency, the information system and land data play an essential role Reviewing the result implementing in last five years from 2012 to 2017, the database of tax system has been set up but has not completed yet Several taxpayers who own many land plots in rural areas especialy remote areas have not yet declared them all, leading to an incomplete data system
On the management side, the system of report form taking from the software is continuously improving to meet the report demand
In order to continue to improve, ensure the consistency and continuity of the information data system, Chile's lessons learned have been briefed according to the following two principles:
20 Vietnam Government (2010), Government impact assessment report - Draft report on non- agricultural land use tax law
21 Vietnam Government (2007) Decree 123/2007/NĐ-CP dated 27/7/2007 amending and supplementing a number of articles of decree No 188/2004/ND-CP dated 16/11/2004 on methods of determining land prices and land price brackets
22 Prime Minister (2007) Decision 272 / QD-TTg Approving the results of land square statistic in
23 Caculated base on Government report, average revenue from 2012-2017 i To collect land, real estate database involve quantity, type, and regular updates; ii Force setting accurate map has an important and essential role to ensure accuracy in land price assessment It is also be database for policy reforming later;
By these principles, the process of inventory, measurement and statistics must be conducted across the country by one standard, which have clear guidelines to apply throughout system This will help to consist control, synchronize information, thereby avoiding each local have separate reference Moreover, the above information should also be digitized and linked to land data of nation This not only reduces fraudulent, but also helps to control taxpayables well
When applying the Land Law of 2003 until mid of 2014, the information basement of each parcel and changes in use were tracked based on cadastral files, cadastral maps, current status map, land register main, land inventory book and land change monitoring book These documents prepared and stored in wards, communes nationwide When there was an adjustment, the locality will update the data for each parcel of land It was discrete management in each wards and communes without connecting and synchronizing all information on land documences and changes in whole country Therefore, at that time, the government had to conduct land inventory every five years Stocktaking process is costly and results are only show at a fixed time
The Land Law 2013 takes effect from July 1st, 2014, stipulating Ministry of Natural Resources and Environment is in charge of land management According to
―Section 2: basic land survey, regulations on statistics, land inventory, mapping land use status‖ in law, these are not changes compared to the Law in 2003 So to improve the ability to update, adjust, process information quickly and effectively, the government should continue to improve the land database system nationwide, then the records of each parcel are updated straight into the system
From the price assessment viewpoint, by the experience of Chile, it is not good to conduct separate assessments, but should to rely on whole assessment by information technology system The value of real property bases on CPI (Consumption Price Index) and GDP (Gross Domesstic Product) could enhance accuracy, save time and reduce the number of public servant needed for price assessment
In a consistent information system, the collection process with issuing invoices is automated to improve accuracy and reduce public employee participating in tax collection process In addition, the tax authorities should cooperate with banks to control and transparent revenues These reduce the cost of tax collection; minimize direct contact between taxpayers and tax officials, thereby reducing corruption
Banking transactions are reliable evidence for investigation, inspection and enforcement for cases of fraud or tax evasion
Up to the present, although issuing tax payment invoices has been done but has not been digital invoices, only paper document is difficult to store, control and inspect
Paying tax transactions are mainly conducted directly in cash, especially in rural and remote areas In case of Vietnam typical in Vietnam make payment by cash in hand at the monment; the infrastructure system to pay taxes directly through banks is not synchronous Therefore, the solution in this time is local tax offices give a support to taxpayers updating changing data on the general management system
The final solution to increase revenues is to encourage and increase taxpayers' active compliance It is lesson learned from experience of other countries
Propaganda and encourage activities aim changing the behavior of taxpayers, policymakers, and local officials When taxpayers' sense of tax compliance is enhanced, tax collection and enforcement costs will be reduced
4.1.2 these steps to optimize property tax revenue by enhancing collection process effectiveness
Planning is basement for implementation and evaluation after, according to clearly logical framework A clearly plan follow the hierarchy, classify which ministries are responsible, the suitable adjust plan and activities base on the budget
The goals is in order from most important The goals are arranged in order of the most important words and prioritize resource allocation to less The criteria are based on (1) The comments given in the workshop are to increase the accountability and transparency of the process of tax collection and spending; (2) Research
''Economic and non economic factors in tax compliance'' in 1995 mentioned the major elements that enter the tax compliance decision of individuals These factors include the standard elements of audit and penalty rates, as emphasized by the economic approach to compliance behavior However, they also include several factors suggested by alternative theories of behavior under uncertainty, factors that emerge from noneconomic analyses of compliance These are detection and punishment; burden of taxation; government services; overweighting of low probabilities; social norms By all of them, a survey 24 was conducted with 231 people in order to arrange goals from most important and priority to less Finally, the result as follows: i Tax burdern: The tax payable too high ii Detection and punishment: Equity (1) Equity among social classes; (2)
Evasion against depends upon the audit and the fine rates by government.) iii Accoutability and transparency: The government can not delare detail and exact revenues and expenditures in state budget iv Overweighting of low probabilities: Taxpayers is not clear about tax regulations (deadline make payment and payable tax amount)
24 Appendix 3 v Government services: Complicated tax public services such as complex declaration and tax payment is not convenient vi Confidence: the state uses inefficient tax revenue source
A plan formulated through interaction between a bottom-up process to absorb local tax payable needs and top-down process to limit waste of available resources and to te giude them to be consistent with the centrally established sector development plan The order excludes tax burden because there is not much the property tax burden in current regulations The improvements on land is not included in tax base and the highest property tax rate in Vetnam is 0.2%, lowest tax rate comparated to four other countriues analysed in chapter 3.
Expading tax base
4.2.1 Expading tax base of non-agriculture land use tax
There are two options to expand tax base, (1) the first option is raising prices of property taxpayable and/or (2) Adding the building on land into tax base instead of only land be taxed now, as well as narrow the objects tax exemption and reduction
4.2.1.1 Adjusting prices of property taxpayable
This is one of the simplest solutions that governments can raise tax revenue in order to achieve budget goals However, the price of taxpayable cannot be climbed up baselessly, the government formulates prices based on the nation's economic conditions in each period In the analysis casestudy of developing countries, the taxable land price is quoted by the State agency every three or five years In Vietnam, Provincial People‘s Committees issue taxable land prices used to calculate non-agricultural land use tax for every five years
Due to suitable prices of property taxpayable will balance four elements including (i) Low cost of price assessment, (ii) Tax guoyancy is advailable, (iii) Achieved the highest tax revenue with potential, (iv) Tax collection process is impossible, property taxable price should be make assessment
Market price versus tax capacity
In Vietnam, the land price is regulated by the provincial People's Committee every year based on the price frame of the Government, this price must not be higher than 30% of the price of the land of the same type prescribed in the price frame 25 ,
―Provincial People's Committees are allowed to set higher land prices but not exceeding 30% of the maximum price of the same land in the land price frame; In case the land price is higher than 30%, the Ministry of Natural Resources and Environment must report it to the Ministry for consideration and decision For agricultural land in residential areas and within the administrative boundaries of the ward, the provincial-level People's Committees shall base themselves on the local realities to set higher land prices but not more than 50% of the dark prices Multi of the same type of land in the land price frame‖ Therefore, although the provincial People's Committee changes and adjusts land prices annually, it still does not reflect the market price of land
In very big cities like Hanoi and Ho Chi Minh City, especially in the core areas, the market value is very expensive; the owner can be rich in real estate value but notreally rich in cash This is a contradiction between market prices and the ability to pay land-related costs, caused by the real estate bubble However, in rural areas, Category III, IV, especially in remote areas, land prices have not changed significantly, the number of transactions is low and there is a small number research to determine transaction land prices Therefore, determining marketable land prices feasible for urban areas where transactions is frequent, but not feasible for rural area where less-traded areas
Have make tax feasible, the valuation of land should be based on the actual using value, in other words, the value that the land gives the owner when they use to cultivation or business
25 Vietnam government (2014), Decree 44/2014 / ND-CP Regulations on land prices, Section 3, Article 11
Thus, when government makes price assessment, they must consider the status of real estate bubbles and impossible implementation The government needs to solve step by step in the short and long term, in the short term, it can be implemented two valuation assessment in both rural and urban at the same time, as follows:
Firstly, in urban areas, taxable land prices should be calculated at market prices instead of government price frameworks This option does not only raise tax revenue but also reduce land investment, one of the causes of real estate bubble
Currently, the Vietnamese government has been completing the policy determining land market prices by comparing between land price framwork and land valuating methods In Decree 104/2014/ND-CP regulating land price framework, urban residential land price bracket in the northeast and southeast (where Hanoi and Ho Chi Minh City are located) has more an urban type, namely IV-Area with the highest price From these regulations, land prices are determined through analysis of actual market land prices, which conducted tranfering transaction on the market (in terms of land types, land areas, land plots, grades, urban type, type of road, location) to compare and determine the price of the land plot, the type of land to be priced 26
Secondly, there is still using the government's land price framework to calculate the tax payable in rural areas in which the land price changes insignificantly or there is very few transaction taking place to be able to determine market value Land prices are assessed by the following methods: i Collection method: method of determining the price by the quotient between the annual net income per unit of land area compared to the average annual savings deposit interest rate (up to the time of price determination) land) of a one-year term of VND deposits at state-owned commercial banks with the highest savings interest rates in the province 27
26 Vietnam Government (2014) Decree 104/2014/NĐ-CP regulations on land price framework
27 Vietnam Government (2004) Decree 188/2004/NĐ-CP on price determination methods and price frameworks for all types of land ii Method of deduction: method of determining the price of land with assets attached to land by excluding the value of assets attached to the land from the total value of real estate (including the value of land and prices) value attached to land) 28 iii Surplus method: determining the land price of vacant land with planned development potential or being allowed to convert the land use purpose to the best use by excluding the estimated cost to create the development out of the assumed total development value of real 29
These methods help land assessment suit with potential income earrned for owners through efficient using, in this way, the amount of tax payable in accordance with affordability, guarantee feasibility of tax
In the long term, when the urbanization is stable, the real estate bubble goes down, the number of real estate transactions is less, the taxable land price in both urban and rural areas are determined around value through using land Meanwhile, tax policy will be ensured feasibility and sustainability
Land price assessment base on market prices is accurate and updated, especially in big cities However, the asessment system of market-based tax pricing requires a high-qualified employees, neutral, unbiased pricing system as well as transfer owner rights transaction statistical information This team will increase the cost of tax collection implementing Another way to estimate for adjusting taxable land prices is based on GDP
Adjusting land price according to CPI versus GDP
28 Vietnam Government (2007) Decree 123/2007/NĐ-CP on endments to decree 188/2004/ND-CP of the government dated 16/11/2004 on price determination methods and price frameworks for all types of land
29 Vietnam Government (2007) Decree 123/2007/NĐ-CP on endments to decree 188/2004/ND-CP of the government dated 16/11/2004 on price determination methods and price frameworks for all types of land
Adjusting tax rate
In current tax design, the non-agricultural land use tax is being waived until December 31, 2020; the non-agricultural land use tax rate is from 0.03% to 0.2%, applicable to land acquisition Tax rates in Vietnam are the lowest compared to the four countries analyzed above Specifically, tax rate 0.5% in Indonesia is more than fifteen times the tax rate at 0.03% and 2.5 tax rate at 0.2%
Table 5.3: Tax revenues in hypothesis 32
Revenue of non-agricultural use tax 1,310 21,833 33 20,523
32 Writer caculated base on data in Appendix 2
Revenue of land using, house
5 Total revenues of state budget 946,445 975,127
Percentage of total state budget revenue (6)=(1)/(5) 0.14% 3.08%
Percentage of General property revenue (7)=(1)/(4) 1.10% 14.81%
(Source: Author calculated from data’s MOF)
With the provisions on non-agricultural land use tax, the actual five-year tax revenue results in an average of VND 1,310 billion, account for 0.14% of total state budget Assuming that tax rate increases do not change taxpayers' behavior, tax compliance is still guaranteed The results of tax revenue calculation are as follows
In the table above, column (A) is the actual five-year average reveue from 2012 to
2017, hypothetical model assumpts tax rate of non-agriculture land use tax is 0.5% as Indonesia's tax rate, 0.03% is tax rate of agriculture land use tax and other charges remain unchanged Revenue of non-agriculture and agriculture use hypothetical model model rise 20,523 billion Dongs and 8,159 billion Dongs respectively The percentage of total state budget revenue jumps to 3.08% and account for 14.81% in general property revenue
In the draft of property tax law (2018), the options offered were only to expand the tax base without a plan to increase the tax rate Policymakers probably want to ensure tax compliance and design according to solid tax principles (wide tax base, narrow tax rates), but the tax rates in Vietnam compared to these countries are much lower, so reasonable taxation increasing plans can be considered
Initial choice 35 focuses on enhancing compliance Experience of the countries pointed out in the early stages of reform, incentive policies are one of the factors that determine the success of the new tax and the implementation of tax policy
When people are familar with new tax, the government may consider increasing the rate of taxed land according to the taxpayer's acceptance threshold, similar to Jamaica Meanwhile, budget revenue will gradually increase while maintaining or strengthening the level of compliance
Second choice 36 raising tax rate, in the starting period still taxed with 100% of the land value but at a lower tax rate, namely 0.1% instead of 0.5% and then depending on the policy goals which may gradually increase the tax rate Taxpayers' behavior is often more concerned with the tax rate they pay than the tax value of the land, even though the numerical results must be paid equally This design is also simple, easy to remember and easier to understand, so it is easier to propagate and guide implementation
After good tax compliance awareness is better, the database of land and taxpayers completes, while the government bases its goals, they can adjust increasing the tax rate to be equal to other countries in the region in order to raise revenue for the local budget without causing many negative social impacts
35 = taxable land price x % land value calculated x tax rate
36 = taxable land price x % land value calculated x tax rate
This research context is that the Vietnamese government is in the early period of finding and implementing policies that help stabilize budget revenues through property taxes, evidence is the issuance of taxes using non-agricultural land use tax laws from and applied since 2012 Property tax in Vietnam involves agriculture land use tax and non-agriculture land use tax
In theory, properties taxes are a stable source of revenue for the local budget, reducing the burden on the central budget, as well as the means to realize the goal of state budget decentralization In terms of expectations, besides the goal of helping to implement budget decentralization, in the long term, the government hopes to be able to offset revenues from natural resources, state-owned enterprises, and revenues from foreign trade that are tending to decrease In addition, the government also expects housing tax policy to be a good tool to help manage real estate, especially in big cities that are now ignoring assets on land
In this research, author evaluates the results of property tax collection within five years from 2012 to 2017 when start implementing the non-agricultural land use tax law Based on the draft when designing the non-agricultural land use tax law, reporting the land use situation, the actual revenue after five years is lower than the minimum potential revenue, excluding the square of non-agricultural land was raised due to conversion of use purpose Therefore, the author makes suggestions to maximize the revenue to close to the potential revenue The plans need to be done step by step, first focusing on the ability to collect revenue through data collection, combining propaganda, especially the application of information technology to collect, manage and processing data Later, in the short and long term, the government will adjust tax regulations that ensure feasibility and limit economic distortions
This study also evaluates agricultural land use tax, which is currently exempted in order to support farmers and encourage the development of specialized farming and agricultural land accumulation However, the author believes that instead of tax exemption, it is the use of this revenue to invest in infrastructure, knowledge or sustainable livelihoods Moreover, the government's orientation to develop specialized farming in large fields also affects biodiversity and sustainable development In the coming time, the government aims to design this tax appropriately and is the basis for managing land use information
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APPENDIX 1 The orientation of agricultural and rural development policy in Vietnam
―The State encourages the form of farm economy development of households and individuals in order to effectively exploit land for production development, scale up and improve land use efficiency in agricultural production , forestry, aquaculture, salt production associated with services, processing and consumption of agricultural products‖
In Decision No 432 / QD-TTg dated April
The Vietnam Sustainable Development Strategy (to ensure food security, sustainable agriculture and rural development) for the period 2011-2020: "Restructuring agriculture and rural areas towards industrialization and promoting the strengths of each region; developing production of quality and effective agricultural products; link production to domestic and international markets to improve resource use efficiency (land, water, forest, labor and capital) "
Decision No 899 / QD-TTg dated June
Restructuring the agricultural sector towards improving added value and sustainable development
Decision No 62/2013 / QD-TTg dated October 25, 2013
"Building and developing large-scale specialized farming areas in the form of farms, farms and hi-tech agricultural zones ";