HÀ NỘI — The Ministry of Finance has withdrawn a proposal to levy a 20 per cent personal income tax on profits from sales of real estate assets, opting instead to maintain the current flat tax on 2 per cent on the transaction value.

Under the latest draft amendment to the Law on Personal Income Tax, which has been sent to the Ministry of Justice for review, the taxable amount is defined as the transfer value multiplied by a 2 per cent tax rate. The amount is determined when the transfer contract takes effect or when procedures for land-use or property asset ownership registration are completed.  

The move is a major adjustment from the ministry's earlier proposal in July, which suggested a tax rate of 20 per cent on the difference between buying and selling prices, as well as imposing tax based on holding time.

In the latest draft, the ministry also scrapped the proposal to tax property transfers based on the holding time.

Real estate transactions are an important source of personal income tax revenue.

The finance ministry said that keeping the current system, which has been in place since 2015, ensures feasibility and east of administration, despite the argument that it creates loopholes.

Some critics say sellers can under-declare the transaction value to reduce their liabilities, leading to State budget losses and reduced transparency in the property market.

However, the ministry said it would create a roadmap for taxing net gains and holding times after the population and land management databases are sufficiently developed.

A 20 per cent tax rate on net gains from real estate transactions is also considered impractical, as some critics said when the proposal was raised in the July draft.

Many said that the 20 per cent rate was too high and would further inflate already-high housing prices, making homeownership still less affordable. The market would also likely face liquidity issues, as owners could become more reluctant to transact.

The complexity of determining original purchasing prices and deductible expenses is also a major concern due to the lack of a land database. — BIZHUB/VNS