Stabilizing state budget: Property tax reform in Vietnam

In law, similar to the regulation of non-agricultural land, the provincial People's Committee is basing on the local condition to classify into land categories, and by land [r]

VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY

LUU THI TAM

STABILIZING STATE BUDGET:

PROPERTY TAX REFORM IN VIETNAM

MASTER'S THESIS ………

PUBLIC POLICY

61

VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY

LUU THI TAM

STABILIZING STATE BUDGET:

PROPERTY TAX REFORM IN VIETNAM

MAJOR: PUBLIC POLICY CODE: ………

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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

ii 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

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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

1.1 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

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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

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LIST OF FIGURES

Figure 2.1: The scale of budget revenues and expenditures balance with GDP in Vietnam from 2007 to 2017 ……… 25 Figure 2.2: The budget deficit in Vietnam from 2007 to 2017 ……… 26 Figure 2.3: The structure of revenues in Vietnam state budget from 2012

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LIST OF TABLES

Table 1.1: Concepual framework for property tax reform ……… 23 Table 2.1: Tax categories of agricultural land use tax ……… 25 Table 2.2: The tax rate of non-agricultural land use tax ……… 31 Table 2.3: Revenue of non-agricultural land use tax (2012-2017) …… 33 Table 2.4: Revenue of agricultural land use tax (2010-2017) ………… 35 Table 3.1: The comparison between Vietnam and other developing

countries ……… 38

Table 3.2: Reforming objectives in Vietnam and other developing

countries ……… 39

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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 non-renewable 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

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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‖1

Another pursues of state management at the moment in Vietnam are decentralization.2 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)

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The scope of research:

The time period in this research from 2012 to 2017 due to the non-agriculture land use tax – specific name of property tax applied from 2012, and data in 2017 is the published number that can be collected at the time of the study

Research content is on the side of state budget, including theoretical basis analysis step In detail, expressing number of revenue without analyzing social impacts such as price fluctuations and fairness as well as estimate potential revenues

Any link to new property draft law in which expand the tax base, tax rate only for comparison purposes

The purpose of research:

This research focuses on a solution to improve collection efficiency in order to achieve higher property tax revenues in legal framework enacted, and suggest reform in short-time and long-term which to strengthen state budget stabilization in the future by property tax

Research methodology:

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CHAPTER 1: LITERATURE REVIEW AND THEORETICAL FRAMEWORK

1.1 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

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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

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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

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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

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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 Considering the period 2005-2013, the rate of property tax collection (annual tax collection, asset use) compared to GDP in developed countries and some developing countries in Asia is about 2% of GDP In Vietnam, the assessment shows that the annual income tax, in the process of using assets (agricultural land use tax, agricultural land use tax) accounts for only 0.036% of GDP and only regulates land

General purpose was given is enhance state management in assets, corresponding international practices and the context of international economic integration

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use, and have additional investment resources back to the land Besides, to regulate with property of houses and land, contributing to ensuring social justice

The draft property law order to strengthen the management of the use of assets by organizations and individuals, to well exploit the revenue from property, one of the requirements is to reform and improve institutions, in which tax policy reforms in order to timely adjust economic activities to ensure compliance with the socio-economic development orientation and the context of international socio-economic integration, to facilitate and protect national interests in participating in integration international economy

Thus, statement above determined reforming tax policies on property and implement to restructure state budget revenues will contribute to state management in property, suit with international regulations

Therefore, choice of a property tax is in many respects the optimal choice; it has room for future revenue growth The government also hope expanding tax base as property tax draff law in 2018 could reduce budget deficit, find regular revenue for local budget Researchs also pointed out if it has a good control and monitoring system, property tax is potential to takle state budget challenge However, in fact, this draft law is not appreciates by policy critics in Vietnam at the moment; the reason are leading to inequality, corruption, and tax base erosion in the long-term In this context, this work focuses on the maximizing efficiency plan according to the current regulations in the law and short-term adjustments

1.2 Theoretical framework

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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 Poterba, 1995)

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 balance4

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

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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

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1.2.3 Determinants of stabilizing state budget in terms of tax

1.2.3.1 Macroeconomics stability

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)

1.2.3.2 Tax regulations

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

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Property tax is revenue of local government, although in OECD developed countries account for less than percent of GDP (McCluskey W J & Franzsen R C 2017) but plays an essential role to pay local public services, offset the central budget

1.2.3.3 A good tax structure

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

11 i To prepare and issue tax invoices ii Payment of tax collection

iii Enforcement those cases that 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

There is no 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 ad-valorem tax, in some case, it also included personal valued assessts, calculated and collected by a local government, which is paid by the owner of the property (Heller, 1974) The tax payable is calculated basing on the value of the owned property, including land The local government allocates this fund to water and sewer improvements provide law enforcement and fire service and other items deemed necessary

Property tax is one of taxation in state budget revenues, it is local revenue Almost local governments in the world rely, at least to some extent, on property taxation to pay for local services Economists have long argued that the property tax is a good tax for local government due to fairness in benefits received from local services, it also is not evade, promotes local autonomy and accountability The results recored from OECD give information that property tax revenues rarely exceed percent of GDP in any countries and even less than (Slack, N E 2013) But property tax remains important revenue of local government to balance with central budget as well as improving quality of public services

Property tax involves a tax on residential property and a tax on non-residential property Almost countries taxes higher rate or levy on non-residential properties than on residential properties (Slack, N E 2013)

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property can be assessed by physical inspection, the tax is difficult to evade; indeed, local government officials are well situated to collect the tax The property tax can serve as a perfect tax to encourage more responsive, efficient, and accountable local governments; thus, it is a visible and politically sensitive revenue instrument (Alm, J 2013)

1.2.5 Conceptual framework for property tax reform

The conceptual framework has been formulated by Jay K Rosengard (1998) including purposes, principles and process

The purpose is ensure the long-term generation of adequate local government discretionary resources This entails providing local government with more revenuw where the property tax yeils is insufficient and strengthening the future viability of property taxation by improving administrative cost-effectiveness, economic neutrality, and operational fairness whether or not revenue adequacy has already been achieved It is an inappropriate policy tool and poor administrative mechanism for guiding allocative decisions achiveing social goals recovering the cost of capital investments or pricing private goods

The principle of property tax reform in developing countries should be administrative and allocative efficiency, horizontal and vertical equity, as well as system sustainability These make the revenue will achive a financially viable, economically non-distortive, political fair, social just, and temporally enduring manner Reforming could helps minimize the costs and maximize the longevity of reform by: increasing coverage through establishment and maintenance of a broad tax base; emphasizing simplicity through promotion of transparent policies and administrative clarity; and enhancing buoyancy through routine indexing

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reforming can minimize public, governmental, and political obstruction, misperception, risk, and thus maximize cooperation by: improving service, applying sanctions, promoting meritocracies, mounting multimedia campaigns, linking policies and practices as well as subsystems of field operations, phasing implementation activities, and upgrading existing systems

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Table 1.1: Conceptual framework for property tax reform

P U R P O S E S

Unsure the long term generation of adequate local government discretionary resources NOT P R I N C I P L E S

In a viable non-distortive fair and enouring manner

Minimize Maximize

Financial and economic cost Political and social cost

Longevity

BY Increasing coverage

& Emphasizing simplicity

& Enhancing buoyancy P R O C E S S

By changing tax policies administrative systems and human behaviour

Minimize Maximize

Obstruction Misperceptions Risk Corporation

BY Improving service & Appling sanctions & Promoting meritocracies & Mounting multimedia campaigns & Linking Phasing Upgrading

(Source: Jay K Rosengard (1998))

Jay K Rosengard ‗s Formulation (1998)

Guide allocative

decisions Achive social goals Recover capital cost Price private goods

Guide alloAdministrative

and Allocative efficiency Horizontal and vertical equity

System sustainabilitycative

decisions

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CHAPTER 2: STATUS OF STATE BUDGET AND LEGAL FRAMEWORK OF PROPERTY TAX IN 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 involves6:

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

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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 Vietnam from 2007 to 20177

(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

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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

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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 2012-20178

(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

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In 2017 is estimated data

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2012 2013 2014 2015 2016 2017

Other revenues Revenues from non-refundable aid Revenue from customs

Revenue from crude oil

Revenues from land, houses

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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

2.2 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;

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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;

Tax base:

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

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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 categories

Land for annual harvest and aquaculture (kg of rice/hectare)

Land for long-term production (Kg of rice/hectare)

1 550 650

2 460 550

3 370 440

4 280 200

5 180 80

6 50

(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

22

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

Tax rate:

Table 2.4: The tax rate of non-agricultural land use tax Tax rate (%)

Area within the limit 0.03

The excess area must not exceed times the limit 0.07 The area of the area exceeds times the limit 0.15

23

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 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

2.3 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

24

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)

Unit: Billion Dong

(Source: Ministry of Finance) In the draft Law on 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 result12 After

9

Government report (2018) – Summarize and evaluate the situation of implementing the collection policy related to assets

10

Revenues until 30/10/2017 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

No Indicators 2012 2013 2014 2015 2016 201710

1 Total state budget revenue 754,572 828,348 877,697 966,870 1,039,000 1,212,180

2 Total domestic revenue 477,106 567,403 593,560 740,932 829,000 990,280

3 Total local budget revenue 336,937 368,833 377,707 450,977 544,425 456,092

4 Number

of collection

By number 1,023 1,377 1,428 1,460 1,397 1,176 Compared to

last year 1.8% 1.7% 1.2% 0.8% 0.9%

5 Percentage of total state

budget revenue (%)

0.13% 0.16% 0.16% 0.15% 0.13% 0.09%

6 Percentage compared to

domestic collection (%)

0.22% 0.24% 0.24% 0.19% 0.16% 0.11%

7 Percentage compared to

local budget revenue (%)

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)

26

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 Agriculture land use tax

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)

Unit: Billion Dong

2007 2008 2009 2010 2011 2012 2013 2014 2015 201613 201714

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 (%)

0.04 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.00

(Sources: Vietnam GSO)

13

Preliminary data 14

27

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

Collection process, information managenment

- 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:

28

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

Comparing to total state budget revenue, property tax revenues accounted for an average of 0.15% during the five-years-period from 2012 to 2017 Besides the rate of domestic and local budget revenues are 0.2% and 0.31% respectively This result is the lowest when compared to the developing countries above

Although revenue from assets accounted for 10.26% of the total average revenue in five years, the percentage of property tax accounts for only 0.15% In the total local budget revenue, revenue by property tax accounts for 0.31% of the total 22.81% of all property tax to the total local budget (Appendix 3) Despite revenues from land, houses accounted for 11.99%, the data indicates that the main source of revenue of the local budget comes mainly from the revenues when establishing ownership and use rights of assets (including land use fees, land rent, and sale of assets State-owned, registration fee), not from revenue during property use time, which is more stable and advailable

29

CHAPTER 3: EXPERIECES IN STABILIZING STATE BUDGET BY REFORMING PROPERTY TAX IN SOME COUNTRIES

In fact, the formulate and implementation property tax in each countries are different, and there has not clear definition of this in the word However, several group of countries have similar in economic conditions, public administration, objectives, human, thus this research select and compare the property tax system in Vietnam with developing countries, including Indonesia, Philipines, Chile, Jamaica15, corresponding data of the first period of reform of countries – in 1989

Table 3.1: Comparison between Vietnam and other developing countries GDP by PPP

(USD)

GDP growth rate (%)

Population density (people

/ km2)

Urban population

rate (%)

Chile 13,250 3.16 22 87

Jamaica 7,370 1.27 333 43

Indonesia 3,600 6.06 128 43

Phillipines 3,900 3.8 307 63

Vietnam16 5,838 6.2 280 32

These countries also developing countries and has conducted the reforming before So, learning from experiences in other countries is necessary in formulation and implementation in Vietnam The reason why this research take data of these countries by 1998 is the early period these countries conducting to reform property tax like this period in Vietnam at the moment

15

Be summarizing, extracting from Jay K.Rosengard (1998)

16

30

This part includes two parts: First, the comparation the property tax in these countries allowing system design, system reform, system performance; Second, the lessons learned for Vietnam in reforming

3.1 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 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

Conducting land assessment and

31 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

32 to increase state budget17

(Source: Summarized from Jay K.Rosengard (1998))

3.2 Taxation design

3.2.1 Tax base

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 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

33

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)

Philipines • And machines

• Progressive tariff schedule from 15% to 80%

3.2.2 Tax rate

Indonesia put a tax on both land and construction at 0.5% Chile taxes same level at 2% add 30% sub other charge

34

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

Chile 2% + 30% sub other charge

Jamaica

Progre

ssive

tax

Fix: At first 6,000 dolar Jamaica of land value - dolar Jamaica

Progress: from 1% to 3%

The progressive tariff

schedule and

assessing the value to calculate tax payable press to national assessment system  Reducing the revenue, effectiveness of tax system

Philipines

Range from 0.5% to 2% 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

35

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

Country Period Collect by

Indonesia 12 months Bank system

Chile 03 months Bank system

Jamaica

12 months The local Treasury or Domestic tax authority Philipines

Vietnam

(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 3.3 Taxation performance: effectiveness

36

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 year18 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 (Rosengard, 2012)

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))

3.4 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

37

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

38

CHAPTER 4: POLICY IMPLICATIONS FOR PROPERTY TAX REFORM TOWARD STABILIZING STATE BUDGET

The previous section mentioned the function of agricultural and non-agricultural land use tax in stabilizing state budget revenue, specifically the periodic source for local budgets However, the revenue collected in Vietnam was lower coal potential By evaluate property tax results of revenues and collection process after 5-year implementation in chapter 2, in early of chapter 4, to add confirmation again that the results is under potential of current regulations, the real revenues is lower than estimate even the scale of non-agriculture have been rising due to urbanization, transfer land using especially in peri-urban

Therefore, in order to maximize revenues, this guides a number of policy implication based on the actual situation, the theoretical framework, and the experiences of developing countries While analyzing the solutions to increase revenue contributing to the state budget, it will compare with the proposals in the first draft property tax law

The fomulars to calculate tax revenue involves two variables: Tax rate and tax base In order to collected highest tax revenue, according to theory, the government could increase the tax rate and/or wider tax base, as well as enhance the collection process implementation With current policy framework, to optimal then raise potential revenue, this part will investigate each option as follows: (1) Improving the effect of collection process, (2) Wider the tax base, (3) To increase tax rate 19

Basing on the experieces from some countries reviewed in chapter 3, it can see the most effective and immediately solution is quality of tax collection

19

39 4.1 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 billion20 Taxable land prices are calculated according to the land price list of the government at 200821; the taxable land area is calculated according to the 200522 land inventory results In fact, the average annual increase of VND 1,31023 billion - lower than the lowest potential, while the area of non-agricultural land has also increased due to urbanization and non-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 2005

23

40

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

41

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

42

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 survey24 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

43

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

4.2 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

44 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 frame25, ―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

45

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

46

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 real29

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

47

Every five-year valuation by government represents only land value at a time, not updated according to the economic development In the case of developing countries like Vietnam, the economic development variable changes over the years, the potential for taxation increase and feasible when the taxable land price adjusted upon economic development

Chile adjusts land price according to the CPI every six months to maintain the tax buoyancy When land price assessment, it is necessary to select suitable commodities the basket of goods to calculate CPI such as housing prices Besides, it is not appropriate to calculate the national CPI for all regions, especially between urban and rural areas

The taxable price frame adjusts to CPI to fit with the amount of revenue available for the state budget, deal with inflation However, when inflation is too high compared to GDP, it will increase the tax burden Therefore, there should hava suitable level, which fit to government goals in different period The adjustment of taxable prices following CPI matchs in urban

Vietnam has not had any research to prove relation between land price and GDP, the national land price data has not yet been collected, and the price issued by the provincial People's Committee does not reflect current price in the market Therefore, there is no data to compare the ratio, the relationship between the price of land and GDP However, having research showed the relation between residential price and GDP per capital in Hong Kong from 1995 to 2011 (Craig, M R S., & Hua, M C 2011), it suits with big cities in Vietnam This paper indicated that housing demand is affected by GDP per capital; residential property price should be positively correlated with GDP per capita The estimation results show that real GDP per capita has the strongest long rung influence on properties prices followed by land supply, which works with a significant lag

48

growth influences building values and bank credut to stimulate investment needs, thus it influences house price Because real estate is a kind of important mortgagaed property, thus it will influence the amount of wealth controlled by people and residents own lending abilities Causing them to change their lending plan and credit demands, as a result real estate developers will also increase the development and investment This kind of demand upon future earnings expectations will expand demand of bank credits It has great effect on new construction investment by credit availability and loan attitudes

From these results and argument of assessing the value of land that the price should depends on the potential value through exploiting and using land effectively Land, labor, capital and technology as inputs for the economy will be a basis for determining taxable land prices according to the GDP growth rate The valuation by this method maintains tax buoyancy and feasibility of non-agricultural land use tax, at that time, the level of taxation of the tax payable corresponds to the level of increase in people's income

Therefore, the long-term price adjustment in urban areas, the assessment should keep every five-year, but adjusted annually according to the ratio of GDP Hanoi City People's Committee issued Decision 179 / QD-UBND dated January 14, 2016 adjusting land price adjustment coefficient in the region

In rural areas, due to the low volatility of land prices, the taxable land valuation should be adjusted only according to GDP and ignored the CPI This adjustment ensures the ability of taxpayers to pay in the regions while adjusting the impossible tax revenue upto the growth rate of the economy

4.2.1.2 Expanding taxpayables

Included houses, buildings on land in tax base

49

Contract to theorytical framework which describe a sustainable tax system (low tax rate, wide tax base), current tax policy in Vietnam is inversely with narrow tax base and low tax rate; moreover, ignored potential in private sector due to the dramatical surge in both number and value of housing in urban, peri-urban For example, in Hanoi and Ho Chi Minh City have Urban Areas (Ecopark, Ciputra, Phu My Hung, ext.) in which the market price of house reachs more twenty billion dongs, luxury apartment‘s price from five billion dongs; the owners almost have high income, so affordability Current tax regulations exclude house, building on land, therefore, they not get tax burden on high value houses, buildings The amount of land tax paid by the owner accounts for a small part of the total floor area of the building compared to the land area With the current speed urbanization rate, it is obviousaly see the potential of houses tax Therefore, from the economic theory of taxation, the exclusion of houses from taxpayers has skipped a significant source of revenue from those who are able to pay

Who are beneficial from narrow tax base, which exclude building on land? Which ones are beneficial from public goods more in urban, the rich or the poor? Taking an example, on the same land area, the owner of an office building for rent or apartment will benefit more than an individual who owns a private home beside when building a new road in front of them, at that time, the total value of the both land plots climb up, but the market price of the building or apartment will increase higher than the market price of the house So in urban areas, the rich who is often the owners of many houses and benefit much from public services

50

Policimakers attempt to balance concept of fairness and wide tax base, aim to raise local budget revenues, then stabiblize state budget in the long term Therefore, the tax base in the non-agricultural land use tax law should be expanded, to tax construction on land to ensure fairness and stabl budget revenues The draft law also provides options for expanding the tax base, but it is necessary to consider and assess the impact before approval

Expanding tax base by abolishing tax exemption

Indonesia's experience shows that tax exemptions for difficult socio-economic sectors not only attract investment capital but also reduce the budget for enhancing local public goods

In Vietnam, there are tax incentive policies to attract capital from domestic and foreign investors; Incentive policies have in economic zones and underdeveloped areas, however, it is still face to difficulties in attracting investment due to limitations in geography, infrastructure, resources limit In the Oxfam‘s research about tax incentives policy in Vietnam (2017) give results of a survey on the effects of different factors on investment have also shown that economic stability, political stability, costs of raw materials, local market, labour costs, transparency of legal framework in the host countries are more important than the availability of tax incentives Tax incentives can promote investment, but they are not the first priority solution as overall economic and institutional environment may be more important for successful In particular, finding suggested that tax incentives ranked 11th out of 12th in importance (Truong, B T & Le, Q T (2017)) Tax incentives are not attractive policies for investors if other conditions such as transportation infrastructure, labor, and materials not meet the needs of investors

51

4.2.2 Expanding tax base of agriculture land use tax

4.2.2.1 Land categories and land price to calculate tax payables

In law, similar to the regulation of non-agricultural land, the provincial People's Committee is basing on the local condition to classify into land categories, and by land price frame issuesed by government a tax base In the long term, when the national land database synchorenize, in addition, the valuation system is more complete there will be basement for comparison Finally, the land price can be determined based on the potential price, which is value get using and exploiting reasonably Moreover, when tax payables base on paddy kilograms on an area is difficult to determine tax calculated land price and tax capacity, since it is difficult to determine product value by rice units, especially when more trees to be cultivated When database collected enough, tax collection process is simply, the government can apply tax rates instead of relying on rice productivity Finally, the taxable land price will be determined based on the economic potential using effective This will increase equity and encourage effective land use

For example, the agricultural land for longlife tree crop purposes in Mai Son district, Son La province, Vietnam is being renovated by at least three years to cultivate, manufacturing By comparision, the area in Da Lat City, Lam Dong Province, Vietnam, not only can have income from longlife tree crops but also tourism development Although the land category is classified differently, land tax calculated price is disparity between localities

4.2.2.2 Expanding tax base by abolish tax exemption, protect cultivated land area, reduce abandoned land area

To protect cultivated land area, reduce abandoned land area

52

coast, Mekong Delta, small area along the northern coast such as Nam Dinh, Nghe An, Thanh Hoa, ext.; The soil is salty in the Mekong Delta, the central coastal provinces like Quang Binh, Ha Tinh, Ninh Thuan, ext.; Alum soil desert in Long Xuyen, Dong Thap Muoi Quadrangle, Ca Mau peninsula, north in Kien An - Hai Phong, Thai Binh, Hai Duong, Quang Ninh In addition, the rising sea level also reduces the area for cultivation land, especially in the Mekong Delta region

Meanwhile, orientation of agricultural and rural development policy in Vietnam is detailed in section 4.2.3.2 above, including "Building and developing large-scale specialized farming areas in form of farms, farms and hi-tech agricultural zones "30 This means the government encourages high-tech agriculture, monoculture agriculture Because high technology in agriculture applies in different scales then give vary results, this research focuses on the impact of large-scale specialized farming areas or monoculture with protection of land and sustainable development The result of a research in Mekong Deltal in Vietnam point out how changes in land-use affect biodiversity and ecosystem functioning, study of author group shows a positive relationship between vegetation richness and detritivore abundance, and a negative relationship between rice cover and proportion of detritivores in the community The study also highlights specific influences of landscape context on arthropod community attributes, with implications for the impact of land-use and management on ecosystem services It should be noted that these relationships were observed in a real agricultural setting in which cropping synchrony, pesticide inputs and large-scale landscape factors were not controlled Declining biodiversity in agro-ecosystems, caused by intensification of production or expansion of monocultures, is associated with the emergence of agricultural pests

30

53

A message to COP2131 gives information about agroecological practices such as agroforestry, which involves integrating the right trees and woody shrubs into agricultural landscapes— are an important part of the solution The trees to use for agroforestry can be selected so they deliver products and services that improve not only farmers‘ lives and countries‘ economies, but also the environment The right trees in the right place have been shown to build farmers‘ resilience to climate-related shocks such as unpredictable and extreme weather; they this both by diversifying income sources, and by providing environmental services such as soil

improvement, flood control and wind shelter In the conference, the case of farmers

in Brazil has created many hectares of abandoned land by forest gardens, so this model can prevent desertification in Vietnam, be protect land squares Although here agroforestry replaces native forest, biodiversity usually go down, agroforestry can be used to enhance biodiversity on degraded sites, often resulting from prior deforestation Agroforestry systems tend to be more biologically diverse than conventional croplands, degraded grasslands or pastures, and the early stages of secondary forest fallows Therefore, the climate challenge is to avoid deforestation where possible, and, where it cannot be avoided, to use local knowledge and spicies to create agroforestry habitats with multiple values to both the farmer and local flora and fauna Multi-cultivation and intercropping are livelihood solution for farmers to deal with natural disasters, price fluctuations and output of agricultural products

Agro-forestry against desertification to protect cultivated land square, groundwater and surface water; maintain biodiversity

Multi-cultivation and intercropping combinate with biological conservation are livelihood solutions for farmers to deal with natural disasters, price fluctuations and output of agricultural products

Expanding tax base by abolish tax exemption

31

54

State issued tax exemption policy aim to attact to investors and farmers working for development agriculture However, as mentioned in the above non-agricultural land use tax exemptions, tax incentives are not an important factor that investors when making decisions invest or not Moreover, in fact, over the past few years, in the periurbans, midland provinces in which have a favorable weather conditions, be attract more agricultural projects In severe weather condition such as Dac Lac - Tay Nguyen, the area of abandoned land increases due to unsustainable land exploitation (mining, deforestation for cultivated purpose leading disapear groundwater and surface water area) Therefore, instead of tax exemption, local authorities should use this revenue source to prevent natural disasters and directly support farmers to allocate resources more effectively

4.3 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 hypothesis32

No

Current basis model

Hypothesis Difference

(A) (B) =(B)-(A)

1

Revenue of non-agricultural

use tax 1,310 21,83333 20,523

28,682

2 Revenue of agricultural use 59 8,21834 8,159

32

Writer caculated base on data in Appendix 33

1,310 billion Dong x 0.5%/0.03% = 21,833 billion Dong 34

55

tax

3

Revenue of land using, house

(3)=(1)+(2) 1,369 30,051

4 General property revenue 118,744 147,426

5 Total revenues of state budget 946,445 975,127

6

Percentage of total state

budget revenue (6)=(1)/(5) 0.14% 3.08%

7

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 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

56

Initial choice35 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 choice36 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

57

CONCLUSION

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

58

59

REFERENCES

Alm, J., Sanchez, I., & De Juan, A (1995) Economic and noneconomic factors in tax compliance Kyklos, 48(1), 1-18

Alm, J (2013) A convenient truth: Property taxes and revenue stability Cityscape, 243-245

Bahl R & Martinez-Vazquez J (2007) The property tax in developing countries: Current practice and prospects Documento de trabajo (07RB1)

Craig, M R S., & Hua, M C (2011) Determinants of property prices in Hong Kong SAR: Implications for policy (No 11-277) International Monetary Fund

Das-Gupta, A (2004) The Economic Theory of Tax Compliance with special Reference to Tax Compliance Costs Publications Unit, National Institute of Public Finance and Policy

Debrun, M X., & Kapoor, R (2010) Fiscal policy and macroeconomic stability: automatic stabilizers work, always and everywhere (No 10-111) International Monetary Fund

Eshag, E (1983) Fiscal and monetary policies and problems in developing countries Cambridge University Press

Fujimoto Handout of Class 3: Macroeconomic policies in Developing countries Development Finance subject, Vietnam Japan University (2017)

Heller, T C (1974) The Theory of Property Taxation and Land Use Restrictions Wis L Rev., 751

Kalkuhl, M., Fernandez Milan, B., Schwerhoff, G., Jakob, M., Hahnen, M., & Creutzig, F (2017) Fiscal instruments for sustainable development: The case of land taxes

Mankiw, N G (2010) Macroeconomics,(7th Int ed.)

Mankiw N G Weinzierl M & Yagan D (2009) Optimal taxation in theory and practice Journal of Economic Perspectives 23(4) 147-74

McCluskey, W J., & Trinh, H L (2013) Property tax reform in Vietnam: Options, direction and evaluation Land Use Policy, 30(1), 276-285

McCluskey W J & Franzsen R C (2017) Land value taxation: An applied analysis Routledge

Ocampo, J A (2008) A broad view of macroeconomic stability The Washington consensus reconsidered, 63-94

60

Rosengard J K (2012) Property tax reform in developing countries Springer Science & Business Media

Slack, N E (2013) The Property Tax in Theory and Practice Institute on Municipal Finance & Governance, Munk School of Global Affairs, University of Toronto Stiglitz, J E (1987) Pareto efficient and optimal taxation and the new new welfare

economics In Handbook of public economics (Vol 2, pp 991-1042) Elsevier

Shukla, Gangadha Prasad; Pham, Duc Minh; Engelschalk, Michael; Minh Le, Tuan 2011 Tax reform in Vietnam : toward a more efficient and equitable system

(English) Washington, DC: World Bank

http://documents.worldbank.org/curated/en/937621468327932237/Tax-reform-in-Vietnam-toward-a-more-efficient-and-equitable-system

Suárez, A., Watson, R T., & Dokken, D J (2002) Climate change and biodiversity Trinh, H L., & McCluskey, W J (2012) Property Tax Reform in Vietnam: A Work in

Progress

Truong, B T & Le, Q T (2017) Assessing Vietnam’s Tax incentive policies Oxfam in Vietnam

Xu, T (2017) The relationship between interest rates, Income, GDP growth and house prices Research in Economics and Management, 2(1), 30-37

Wilby, A., Heong, K L., Huyen, N P D., Quang, N H., Minh, N V., & Thomas, M B (2006) Arthropod diversity and community structure in relation to land use in the Mekong Delta, Vietnam Ecosystems, 9(4), 538-549

Workshop:

NIF (2018) Proterty tax experience Workshop Property tax and policy recommendation for Vietnam June 2018, Hanoi

61 APPENDIX

The orientation of agricultural and rural development policy in Vietnam

In Vietnam Land Law (2013)

―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 12, 2012

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 10, 2013

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 ";

62

the same area, with a large farm size, with the aim of creating a concentrated, high-quality commodity farm produce, increasing the competitiveness of agricultural products in the market in order to improve production efficiency and increase incomes for farmers and partners involved "

Resolution 55/2010 / QH12; Resolution No 28/2016 / QH13

No.55 : to exmept from 2011

61 APPENDIX 237

The estimate tax revenues for agriculture land use tax when tax rate at 0.03%

Using purposes Code

Land square according to purposes of land using

Total

Inculde: Non-residential

land in rural area Urban land Total square of

agriculture land NNP 24,822,559.48 2,024,889.67 546,258.47

24,822,559.48 2,024,889.67 546,258.47

0.03% 0.03% 0.03%

7,446.77 607.47 163.88

37

64 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 Thứ tự/ Important

order

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

65 APPENDIX

State budget revenues from assets, property38

No Content 2012 2013 2014 2015 2016 2017 Average

1 Total state budget revenue

754,572 828,348 877,697 966,870 1,039,000 1,212,180 946,445

2 Total domestic budget revenue

477,106 567,403 593,560 740,932 829,000 990,280 699,714

3 Total local budget revenue

336,937 368,833 377,707 450,977 544,425 456,092 422,495

4 Land using

revenue

45,141 45,287 44,287 68,998 99,696 79,500 63,818

5 Percentage of total state budget revenue

5.98% 5.46% 5.03% 7.13% 9.59% 6.55% 6.62%

6 Percentage compared to domestic revenue

10.00% 7.90% 7.45% 9.30% 12.00% 8.00% 9.11%

7 Percentage compared to local budget revenue

13.40% 12.30% 11.70% 15.30% 18.30% 17.40% 14.73%

8 Hire land

revenue

7,559 727 8,788 14,575 22,351 15,654 11,609

9 Percentage of total state budget revenue

1.00% 0.87% 1.00% 1.50% 2.15% 1.29% 1.30%

10 Percentage compared to domestic

1.69% 1.28% 1.48% 1.96% 2.70% 1.60% 1.79%

38

66 revenue

11 Percentage compared to local budget revenue

2.24% 1.97% 2.30% 3.23% 4.10% 3.40% 2.87%

12 Revenues

from the sale of state-owned houses, asset

1,908 1,631 2,597 2,756 3,916 2,205 2,502

13 Percentage of total state budget revenue

0.25% 0.19% 0.29% 0.28% 0.37% 0.18% 0.26%

14 Percentage compared to domestic revenue

0.42% 0.28% 0.43% 0.37% 0.47% 0.22% 0.37%

15 Percentage compared to local budget revenue

0.56% 0.44% 0.68% 0.61% 0.72% 0.48% 0.58%

16 Revenues

from registration fees

11,816 13,595 1,609 22,405 27,304 20,209 16,156

17 Percentage of total state budget revenue

1.56% 1.64% 1.83% 2.32% 2.63% 1.67% 1.94%

18 Percentage compared to domestic revenue

2.64% 2.39% 2.71% 3.02% 3.29% 2.04% 2.68%

19 Percentage compared to

67 local budget

revenue

20 Revenue when

establishing ownership and use rights of assets

66,424 61,240 57,281 108,734 153,267 117,568 94,086

21 Percentage of total state budget revenue

8.79% 8.16% 8.15% 11.23% 14.74% 9.69% 10.13%

22 Percentage compared to domestic revenue

14.75% 11.85% 12.07% 14.65% 18.46% 11.86% 13.94%

23 Percentage compared to local budget revenue

19.70% 18.39% 18.93% 24.11% 28.14% 25.71% 22.50%

24 Revenue of

non-agricultural use tax

1,023 1,377 1,428 1,460 1,397 1,176 1,310

25 Percentage of total state budget revenue

0.13% 0.16% 0.16% 0.15% 0.13% 0.09% 0.14%

26 Percentage compared to domestic revenue

0.22% 0.24% 0.24% 0.19% 0.16% 0.11% 0.19%

27 Percentage compared to local budget revenue

68

28 Revenue of

agricultural use tax

69 69 61 58 60 39 59

29 Percentage of total state budget revenue

0.01% 0.01% 0.01% 0.01% 0.01% 0.00% 0.01%

30 Percentage compared to domestic revenue

0.01% 0.01% 0.01% 0.01% 0.01% 0.00% 0.01%

31 Percentage compared to local budget revenue

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

32 Revenue of

property tax (land using, house )

1,092 1,446 1,489 1,518 1,457 1,215 1,370

33 Percentage of total state budget revenue

0.14% 0.17% 0.17% 0.16% 0.14% 0.09% 0.15%

34 Percentage compared to domestic revenue

0.23% 0.25% 0.25% 0.20% 0.17% 0.11% 0.20%

35 Percentage compared to local budget revenue

0.30% 0.37% 0.37% 0.32% 0.25% 0.25% 0.31%

36 Personal Income Tax

3,732 3,829 4,828 6,839 8,471 8,770 6,078

37 Corporation Income Tax

4,397 3,573 5,832 5,879 8,046 1,025 4,792

69 total state

budget revenue 39 Percentage

compared to domestic revenue

1.81% 1.30% 1.80% 1.70% 2% 1.92% 1.76%

40 Percentage compared to local budget revenue

2.41% 2% 2.80% 2.80% 3% 4.17% 2.86%

41 General

revenue from assets

75,576 70,019 69,369 122,912 171,181 128,539 106,266

42 Percentage of total state budget revenue

9.17% 8.52% 8.58% 11.68% 15.23% 10.16% 10.56%

43 Percentage compared to domestic revenue

16.78% 13.39% 14.11% 16.54% 20.62% 13.89% 15.89%

44 Percentage compared to local budget revenue

22.41% 20.76% 22.10% 27.23% 31.39% 30.13% 25.67%

70 APPENDIX

Summary table of proposals to improve tax collection performance

Information administration and price assessment

Tax collection Propaganda and

enforcement (1) To set up and update

the documents each land plots

(2) Synchronizing digital information system in whole country

(3) Price assessment simultaneously on a computer, without individual pricing for multiple areas

(4) Assessing the value of land to CPI and GDP

(1) Application of an information technology system for managing data on land plots and taxpayers

(2) Issuing electronic invoices Released and updated directly to the general management system

(3) Tax collection through

banks raise

transparency and easy control

(1)Disseminating

information about current law

(2)Tax officials guide and assist taxpayers in providing information

and implementing

procedures

(3)Encourage compliance in taxpayers' behavior (4)Enforcement, sanctions

with violation

71 APPENDIX

Summary table of reforming in tax base characteristic Elements Current law Offers

Short-term Long-term

Non-agriculture land use tax

Land price to tax

Provincial People's Committee (UBND cấp

Tỉnh)

Urban Rural

Potential value through using Market price Government price framework Adjusting land

price (term, base) Each five years

To adjust by CPI annual

Adjusted to the rate of GDP growth

Taxables Non-agriculture

land

Land;

Construction on land in urban

Land

Land and construction on land

Exemption Dificult living condition areas

Instead of tax incentive policies to achieve social goals and encourage investment, use tax revenue to provide and optimize public goods to encourage investment and get to social goals

Agriculture land use tax

Land price to tax

Provincial People's Committee classify land categories; Rice productivity Short-term: Land price frame issused by government

Long-term:

Potential value through using

Adjusting land

72

December, 31st 2020

- Instead of tax incentive policies to encourage investing on agriculture, use tax revenue to prevent natural disaster, raise microfinance to farmers, conect farmer community And to complete database for management

Policy

orientation for development

"Building and developing large-scale specialized farming areas in the form of farms, farms and hi-tech agricultural zones "39

- Agro-forestry against desertification to protect cultivated land square, groundwater and surface water; maintain biodiversity

- Multi-cultivation and intercropping combinate with biological conservation are livelihood solutions for farmers to deal with natural disasters, price fluctuations and output of agricultural products

39

73 APPENDIX

Summary table of proposed tax rate increase option Non-agriculture land use tax

Current formulation Option Option

Range of tax rate from 0.03% to 0.15%, highest tax

rate is 0.2% for

encroachment land Increase by area limit

Tax rate 0.5% Tax rate 0.5%

Short-term

A part of land value Tax rate: 0.1%

Long-term

Whole land value Gradually increase to 0.5%

Agriculture land use tax Current formulation Option

Tax exemption

50% Tax payable in case exceeding the quota of land allocation

100% tax payable in case agricultural land expires but state has not been recovered

Short-term Replace tax calculation based on land class with uniform tax rate of 0.03% Abolish tax exemption policy

http://documents.worldbank.org/curated/en/937621468327932237/Tax-reform-in-Vietnam-toward-a-more-efficient-and-equitable-system http://vepr.org.vn/533/news-detail/1798495/vepr-tren-bao-chi/thue-tai-san-ban-khoan-tinh-hieu-qua.html