VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY LUU THI TAM STABILIZING STATE BUDGET: PROPERTY TAX REFORM IN VIETNAM MASTER'S THESIS ……………………………. PUBLIC POLICY Hanoi, 2019 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY LUU THI TAM STABILIZING STATE BUDGET: PROPERTY TAX REFORM IN VIETNAM MAJOR: PUBLIC POLICY CODE: ………………… RESEARCH SUPERVISOR: Dr. NGUYEN CAM NHUNG 61 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENT I would like to express my deep gratitude to my parents who were patient for my grow up. I would like to express my sincere appreciation to my supervisor, Dr.
Nguyen Cam Nhung, who helped me in performing the thesis with deep enthusiasm. I would like to thank all my teachers, program assistants in Program of Public Policy in Vietnam Japan University who have retransmitted knowledge to me. And, I express my thanks to all of my classmates, my friends who share two years together and encourage me in life and performing the study. Luu Thi Tam Hanoi, 2019 i LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABTRACT In the context of declining revenues from oil, foreign trade and state-owned enterprises in Vietnam state budget, the Government of Vietnam has been reforming to find more stable revenues, property tax is a potential source despite property tax revenue accounts for a small propotion now.
In theory, real property taxes can be stable revenues to local budgets and self-adjust due to increasing price of houses and land as the economy grows. However, compared to internations, Vietnam does not taxes on land improvements, which means that the tax base is narrow. Besides, the taxable land price is regulated and fixed over a five-year period without adjusting the update according to the market value. These restrictions reduce the tax fairness as well as the unrealized collection of budget objectives.
Therefore, based on tax design theory and lessons learned from some other countries, this research suggess several solutions to increase revenues by collection process, then wider tax base and raise tax rate in long-term. In the first period, the government strengthened the efficiency of collection, in particular completing databases, using information technology and propaganda to increase voluntary morality; In urban area, tax price adjusted annual; In the long term, the government will gradually increase tax rates, expand tax bases with improvements on land as well as adjust land prices by GDP and ad-valorem to ensure the tax efficiency and feasibility; In addition, the government needs to consider, evaluate tax exempt policies, instead using these revenues to improve the quality of public goods. ii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 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 Definition and role of balanced-budget ---------------------------------------------------- 7 1.2 Condition for sound budget balance ------------------------------------------------------- 7 1.3 Determinants of stabilizing state budget in terms of tax -------------------------------- 9 1.3 A good tax structure ------------------------------------------------------------------------------- 10 1.4 Property tax versus state budget – relation ---------------------------------------------- 11 1.5 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 Overview of state budget revenue sources ----------------------------------------------- 15 2.2 Vietnam budget trend and budget deficits situation ------------------------------------ 16 2.2 Structure of revenues in Vietnam state budget ------------------------------------------ 18 2.2 Legal framework of revenues of property tax in Vietnam -----------------------------19 2.1 Agriculture land use tax law ----------------------------------------------------------------- 19 2.2 Non-agriculture land use tax ---------------------------------------------------------------- 21 2.3 Results of property tax implementation ----------------------------------------------------23 2.1 Non-agriculture land use tax ---------------------------------------------------------------- 23 2.1 Non-agriculture land use tax: Results of tax revenues -------------------------------------- 23 iii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.2 Non-agriculture land use tax: tax collection results ----------------------------------------- 25 2.2 Agriculture land use tax --------------------------------------------------------------------- 26 2.1 Agriculture land use tax: Result of tax revenues --------------------------------------------- 26 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 3.3 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 Factors to improve tax collection performance ------------------------------------------ 39 4.2 these steps to optimize property tax revenue by enhancing collection process effectiveness ------------------------------------------------------------------------------------------ 42 4.2 Expading tax base ---------------------------------------------------------------------------------43 4.1 Expading tax base of non-agriculture land use tax -------------------------------------- 43 4.1 Adjusting prices of property taxpayable ------------------------------------------------------- 43 4.2 Expanding tax base of agriculture land use tax ------------------------------------------ 51 4.1 Land categories and land price to calculate tax payables ----------------------------------- 51 4.2 Expanding tax base by abolish tax exemption, protect cultivated land area, reduce abandoned land area ---------------------------------------------------------------------------------------- 51 4.3 Adjusting tax rate ---------------------------------------------------------------------------------54 CONCLUSION-------------------------------------------------------------------------------------- 57 REFERENCES -------------------------------------------------------------------------------------- 59 iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 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 to 2017 …………………………………………………….
27 v LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLES Table 1.1: Concepual framework for property tax reform ……………… 23 Table 2.1: Tax categories of agricultural land use tax ………………….2: The tax rate of non-agricultural land use tax ……………….3: Revenue of non-agricultural land use tax (2012-2017) …….4: Revenue of agricultural land use tax (2010-2017) ………….1: The comparison between Vietnam and other developing countries …………………………………………………….2: Reforming objectives in Vietnam and other developing countries …………………………………………………….3: Tax base in Vietnam and other countries …………………… 42 Table 3.4: Tax rate in Vietnam and other developing countries ……… 43 Table 3.5: Price assessment in Vietnam and other developing countries.6: Tax collection in Vietnam and other developing countries ….1: Tax revenues in hypothesis …………………………………. 63 vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 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. According theory, a good tax system is a system with a wide tax base and a low tax rate, which means an increase in indirect tax revenues that helps balance the direct tax in the period of 2011-2020. Vietnam aims to "build and complete the tax policy system to ensure transparency, clarity, ease of understanding, easy implementation; expand tax base to develop revenue sources, cover newly generated revenue sources and restructure towards increasing domestic revenue sources (excluding crude oil vii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 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. Decision approving the tax system reform strategy for the 2011-2010 period (Article 1) 2 Prime Minister (2010).
Official Letter 278 / TTg-PL. Official Letter on assigning the task of researching and developing the State Budget Law project viii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 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: Research applied qualitative analysis and comparison method, combining theoretical framework analysis and practical experience in several countries in the world. Along with analyzing the information and data in Vietnam to assess the situation of the current budget revenue, then propose solutions to increase revenues to help balance the state budget.
ix LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 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.L (2012) researched property tax reform in Vietnam, specifically focused on the changing progress given that land law in Vietnam has always been considered to belong to the State and the shifted to reforming the real property tax from the largely based on rice productivity to one base on ad valorem principles.