The prices have been pushed up by speculation resulting from the government’s faulty pricing and tax policies, Professor Dang Hung Vo, former deputy minister of natural resources and environment and now the dean of the Hanoi National University’s Land Survey Department, told Thanh Nien.

Such policies still exist because of “some officials’ desire” to continue to keep the property market under state control, he said.

Vo, who won public popularity during his tenure that ended earlier this year, said a quick and effective way to bring down land prices was to apply a ‘progressive’ tax scheme in which people had to pay increasingly higher rates of tax on excessive or unproductive land.

“I bet that if the government speeds up drafting of a law [for such a regime], land prices will decrease immediately,” he said.

Old dog fails new tricks

Land prices, especially in big cities, have skyrocketed this year. A 1,400 square meter area in downtown Ho Chi Minh City was recently priced at around VND392 billion (US$24.5 million). The country’s per capita annual income is $835.

Some economists attribute the rise to the country’s young population, rapid urbanization, rising incomes, strong and steady economic growth, and increased foreign investment. A cooling stock market could also drive capital into real estate, they said.

Vo, however, insists there are two major causes - the government’s official prices that trailed far behind market rates and a backwards land tax policy.

The official prices are used to calculate land use and registration fees, lease, transaction taxes, and compensation if the government acquires it.

These prices had always been lower than market rates, Vo said, and “some state officials and rich people want to keep the price difference as much and for as long as possible.”

Since land is nationalized in Vietnam, individuals and businesses that collude with officials have access to enormous land resources.

The government has given local authorities the right to revise the prices, but few have done that.

Vo said the second cause, the backwardness of the land tax regime, was worse than the first. It has been supposed to be an economic measure for land management but was paralyzed by the backwardness, he said.

According to the 1992 Land and House Tax Ordinance, the highest annual tax levied on a square meter of land or house is equivalent to two kilograms of paddy, which cost under VND6,000 (US$0.37).

“No matter how much land or how many houses one can own, he or she just has to multiply the total area in square meter by two and pay for that many kilograms of paddy,” Vo said.

The environment has therefore been “very conducive” for specula-tors, Vo said, stressing the government must apply a progressive tax regime on land and houses.

“The larger area of land that is left unused or excessively owned, the progressively heavier tax we should levy [on land users]. For businesses, land should also be taxed progressively if they do not use it productively, said Vo.

“Progressive land taxes have proven to be very effective in preventing speculation in developed countries and territories.”

A 300-sq.m. area in downtown HCMC or Hanoi, that would be worth about $3.7 million, would annually be taxed around $74,000 in the Australian state of Victoria and $40,000 in Taiwan, he said.

A willing delay

A land tax bill that promotes progressive taxation on excessive or unproductive land was discussed before 2003. The Communist Party decided at that time on “a tax policy facilitating the productive use of land and adjusting incomes of owners of large land area.” The National Assembly had planned to pass the Land Tax Bill during its term ending mid-2007.

However, according to Vo, the Finance Ministry still said that because of a number of reasons there should not be a separate bill for land taxation and that the bill should be delayed.

“I myself think that is something to do with [Finance Ministry officials’] willingness,” said Vo. “I don’t think it’s so hard that after three years they haven’t been able to produce a tax that the entire country needs. And no one seems to have been punished for the delay.”

Source: ThanhnienNews.