Stabilizing state budget property tax reform in vietnam

VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY LUU THI TAM STABILIZING STATE BUDGET: PROPERTY TAX REFORM IN VIETNAM MASTER'S THESIS …………………………… PUBLIC POLICY Hanoi, 2019 VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY LUU THI TAM STABILIZING STATE BUDGET: PROPERTY TAX REFORM IN VIETNAM MAJOR: PUBLIC POLICY CODE: ………………… RESEARCH SUPERVISOR: Dr NGUYEN CAM NHUNG 61 ACKNOWLEDGEMENT I would like to express my deep gratitude to my parents who were patient for my grow up I would like to express my sincere appreciation to my supervisor, Dr Nguyen Cam Nhung, who helped me in performing the thesis with deep enthusiasm I would like to thank all my teachers, program assistants in Program of Public Policy in Vietnam Japan University who have retransmitted knowledge to me And, I express my thanks to all of my classmates, my friends who share two years together and encourage me in life and performing the study Luu Thi Tam Hanoi, 2019 i ABTRACT In the context of declining revenues from oil, foreign trade and state-owned enterprises in Vietnam state budget, the Government of Vietnam has been reforming to find more stable revenues, property tax is a potential source despite property tax revenue accounts for a small propotion now In theory, real property taxes can be stable revenues to local budgets and self-adjust due to increasing price of houses and land as the economy grows However, compared to internations, Vietnam does not taxes on land improvements, which means that the tax base is narrow Besides, the taxable land price is regulated and fixed over a five-year period without adjusting the update according to the market value These restrictions reduce the tax fairness as well as the unrealized collection of budget objectives Therefore, based on tax design theory and lessons learned from some other countries, this research suggess several solutions to increase revenues by collection process, then wider tax base and raise tax rate in long-term In the first period, the government strengthened the efficiency of collection, in particular completing databases, using information technology and propaganda to increase voluntary morality; In urban area, tax price adjusted annual; In the long term, the government will gradually increase tax rates, expand tax bases with improvements on land as well as adjust land prices by GDP and ad-valorem to ensure the tax efficiency and feasibility; In addition, the government needs to consider, evaluate tax exempt policies, instead using these revenues to improve the quality of public goods ii Table of Contents ABTRACT - ii LIST OF FIGURES v LIST OF TABLES - vi INTRODUCTION vii Research motivation: - vii The scope of research: - ix The purpose of research: ix Research methodology: - ix CHAPTER 1: LITERATURE REVIEW AND THEORETICAL FRAMEWORK - 1.1 Literature review 1.2 Theoretical framework 1.2.1 Definition and role of balanced-budget 1.2.2 Condition for sound budget balance - 1.2.3 Determinants of stabilizing state budget in terms of tax 1.2.3.1 Macroeconomics stability 1.2.3.2 Tax regulations 1.2.3.3 A good tax structure - 10 1.2.4 Property tax versus state budget – relation 11 1.2.5 Conceptual framework for property tax reform 12 CHAPTER 2: STATUS OF STATE BUDGET AND LEGAL FRAMEWORK OF PROPERTY TAX IN VIETNAM -15 2.1 Status of state budget in Vietnam -15 2.1.1 Overview of state budget revenue sources - 15 2.1.2 Vietnam budget trend and budget deficits situation 16 2.1.2 Structure of revenues in Vietnam state budget 18 2.2 Legal framework of revenues of property tax in Vietnam -19 2.2.1 Agriculture land use tax law - 19 2.2.2 Non-agriculture land use tax 21 2.3 Results of property tax implementation 23 2.3.1 Non-agriculture land use tax 23 2.3.1.1 Non-agriculture land use tax: Results of tax revenues 23 iii 2.3.1.2 Non-agriculture land use tax: tax collection results - 25 2.3.2 Agriculture land use tax - 26 2.3.2.1 Agriculture land use tax: Result of tax revenues - 26 2.3.2.1 Agriculture land use tax: Tax collection result 27 CHAPTER 3: EXPERIECES IN STABILIZING STATE BUDGET BY REFORMING PROPERTY TAX IN SOME COUNTRIES -29 3.1 Taxation reforming objectives 30 3.2 Taxation design 32 3.2.1 Tax base - 32 3.2.2 Tax rate 33 3.2.3 Price Assessment 34 3.2.4 Collection process - 35 3.3 Taxation performance: effectiveness 35 3.4 The lesson learned from other countries -36 CHAPTER 4: POLICY IMPLICATIONS FOR PROPERTY TAX REFORM TOWARD STABILIZING STATE BUDGET 38 4.1 To enhance collection efficiency 39 4.1.1 Factors to improve tax collection performance 39 4.1.2 these steps to optimize property tax revenue by enhancing collection process effectiveness 42 4.2 Expading tax base -43 4.2.1 Expading tax base of non-agriculture land use tax 43 4.2.1.1 Adjusting prices of property taxpayable - 43 4.2.1.2 Expanding taxpayables 48 4.2.2 Expanding tax base of agriculture land use tax 51 4.2.2.1 Land categories and land price to calculate tax payables - 51 4.2.2.2 Expanding tax base by abolish tax exemption, protect cultivated land area, reduce abandoned land area 51 4.3 Adjusting tax rate -54 CONCLUSION 57 REFERENCES 59 iv LIST OF FIGURES Figure 2.1: The scale of budget revenues and expenditures balance with Figure 2.2: Figure 2.3: v LIST OF TABLES Table 1.1: Table 2.1: Table 2.2: Table 2.3: Table 2.4: Table 3.1: Concepual framework for property tax reform ……………… Tax categories of agricultural land use tax ………………… The tax rate of non-agricultural land use tax ……………… Revenue of non-agricultural land use tax (2012-2017) …… Revenue of agricultural land use tax (2010-2017) ………… Table 3.2: Table 3.3: Table 3.4: Table 3.5: Table 3.6: Table 4.1: Tax base in Vietnam and other countries …………………… Tax rate in Vietnam and other developing countries ……… Price assessment in Vietnam and other developing countries Tax collection in Vietnam and other developing countries … vi INTRODUCTION Research motivation: The state budget of Vietnam depends on revenues of oil or natural resources, foreign trade and state-owned enterprises These have been recording decreasing trend and will be continuous in next time, because of oil or nature resource are nonrenewable Another reason is the participation in trade agreements such as Free Trade Agreements (FTA), government commited to reduce import tariffs on various types of goods when participating in these agreements, so leading to reduction in foreign trade revenue In addition, the more and more state-owned enterprises privatize also reducing the contribution and role of this group in the economy The change of domestic and foreign contexts raises the need to reform and improve the policy of mobilizing budget resources Therefore, government has designed policies stabilizing state revenues to decline budget deficit while maintain government‘s goals in the future as well as adapt to development goals In the theory, there are two sides to approach the goal of balancing the budget deficit including expenditure and revenue aspect This research focuses on revenue side - sustainable revenue creating by tax policies, which minimize the social losses and get the objectives of the state In revenues from central and local government, the government aims to decentralization to achieve the goal of reducing the burden on the central budget According theory, a good tax system is a system with a wide tax base and a low tax rate, which means an increase in indirect tax revenues that helps balance the direct tax in the period of 2011-2020 Vietnam aims to "build and complete the tax policy system to ensure transparency, clarity, ease of understanding, easy implementation; expand tax base to develop revenue sources, cover newly generated revenue sources and restructure towards increasing domestic revenue sources (excluding crude oil vii revenues) by 2015 to reach over 70% of total home budget revenues by 2020, it will be over 80% of the total state budget revenue‖ Another pursues of state management at the moment in Vietnam are decentralization In perspective of taxation and the experience of some countries in the world, property taxes are effective to finance the local budget for supply public goods like education or health In Vietnam, revenues from land and natural resources (except for oil and gas) are sources of local government revenue Therefore, there are opinions from policymakers that if the property tax policy is appropriately designed, it will be able to generate stable revenues for the local budget, offset the cost of public services Then reducing the burden on the central budget In Vietnam, policymakers suggest property taxes can be long-term solutions In 1992, with the goal of contributing to state management of land, encouraging organizations to use land economically and encouraging the contribution of land users to the state budget The government enacted the Ordinance on house and land tax Subjects liable to tax under this Ordinance are residential land, construction land and houses In addition to the Ordinance on housing and land tax, in 1992 also issued the Ordinance on agricultural land use tax At the present, Vietnam only collects taxes on land without collecting taxes on houses or improvements on land Proportion of property tax revenues have room to increase in the total state budget revenue, thus government has focused on property tax reforms, to the present actual revenue is still lower than potential, and the ability to increase in time helps stabilize state budget Prime Minister (2011) Decision No 732/QD-TTg Decision approving the tax system reform strategy for the 2011-2010 period (Article 1) Prime Minister (2010) Official Letter 278 / TTg-PL Official Letter on assigning the task of researching and developing the State Budget Law project viii APPENDIX Examine the order of contents affecting tax compliance behavior Fill in to corresponding to the content below, where is the most influential factor on your tax compliance behavior and is the least impacting factor Nội dung/Contents a Số thuế phải nộp cao a The tax payable too high b Tính cơng sắc thuế (1) Số thuế phải nộp có tính cơng tầng lớp xã hội; (2) Tỷ lệ khả trốn thuế người nộp thuế) b Equity ((1) Equity among social classes; (2) Evasion against depends upon the audit and the fine rates by government.) c Chính phủ khơng đưa giải trình chi tiết xác khoản thu chi ngân sách nhà nước c The government can not delare detail and exact revenues and expenditures in state budget d Bạn không nắm thông tin, quy định liên quan cách khai thuế, số thuế phải nộp, thời hạn nộp khia thuế d Taxpayers is not clear about tax regulations (how to declare tax, deadline make payment and payable tax amount) e Thủ tục hành (kê khai, nộp tiền) phức tạp không thuận tiện e Complicated tax public services such as complex declaration and tax payment is not convenient f Nhà nước sử dụng ngân sách để đầu tư chi tiêu không hiệu f The state uses inefficient tax revenue source 64 APPENDIX State budget revenues from assets, property No Content Total state 38 budget revenue Total domestic budget revenue Total local budget revenue Land using revenue Percentage of total state budget revenue Percentage compared to domestic revenue Percentage compared to local budget revenue Hire land revenue Percentage of total state budget revenue 10 Percentage compared to domestic Ministry of finance (2018), Report: Summarize and evaluate the situation of implementing the collection policy related to assets 38 65 revenue 11 Percentage compared to local budget revenue 12 Revenues from the sale of state-owned houses, asset 13 Percentage of total state budget revenue 14 Percentage compared to domestic revenue 15 Percentage compared to local budget revenue 16 Revenues from registration fees 17 Percentage of total state budget revenue 18 Percentage compared to domestic revenue 19 Percentage compared to 66 local budget revenue 20 Revenue when establishing ownership and use rights of assets 21 Percentage of total state budget revenue 22 Percentage compared to domestic revenue 23 Percentage compared to local budget revenue 24 Revenue of nonagricultural use tax 25 Percentage of total state budget revenue 26 Percentage compared to domestic revenue 27 Percentage compared to local budget revenue 67 28 Revenue of agricultural use tax 29 Percentage of total state budget revenue 30 Percentage compared to domestic revenue 31 Percentage compared to local budget revenue 32 Revenue of property tax (land using, house ) 33 Percentage of total state budget revenue 34 Percentage compared to domestic revenue 35 Percentage compared to local budget revenue 36 Personal Income Tax 37 Corporation Income Tax 38 Percentage of 68 total state budget revenue 39 Percentage compared to domestic revenue 40 Percentage compared to local budget revenue 41 General revenue from assets 42 Percentage of total state budget revenue 43 Percentage compared to domestic revenue 44 Percentage compared to local budget revenue (Source: Ministry of Finance) 69 APPENDIX Summary table of proposals to improve tax collection performance and price assessment the documents land plots (2) Synchronizing information system in whole country (3) Price simultaneously computer, individual multiple areas (4) Assessing the value of land to CPI and GDP 70 APPENDIX Summary table of reforming in tax base characteristic Elements Non-agriculture land use tax Land price to tax Adjusting land price (term, base) Taxables Exemption Agriculture land use tax Land price to tax Adjusting land price (term,base) Taxables 71 Policy orientation for development 39 Vietnam National Assembly (2013) Decision No 62/2013 / QD-TTg dated October 25, 2013 Decision ablut the policy to promote development of cooperation and links production mounted with agricultural consumpltion, building large farm 72 APPENDIX Summary table of proposed tax rate increase option Non-agriculture land use tax Current formulation Range of 0.03% to 0.15%, highest tax rate is encroachment land Increase by area limit Agriculture land use tax Current formulation  Tax exemption exceeding land allocation agricultural recovered 73 ... VIETNAM 2.1 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 : i Taxes are paid by... fix definition of property tax in the world depending on tax scale but accoring the theory and regular in other countries, property tax is a real estate advalorem tax, in some case, it also included... 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