Raising Personal Income Tax on Real Estate: A Risk That Could Weaken a Recovering Market

As Vietnam’s real estate market has just begun to show signs of recovery following the deep freeze of 2022–2023, the newly proposed Personal Income Tax (PIT) Law is raising serious concerns. A proposed tax rate of up to 20% on real estate transfer income could act as a harsh brake, pushing the market back into decline and directly impacting national economic growth.

New Tax Rate: A Cloud Over Recovery Momentum

According to the draft PIT Law currently open for public comment by the Ministry of Finance, the proposed tax on real estate transfers may reach 20% of taxable income—calculated as selling price minus purchase price and related legitimate expenses.

If the seller cannot prove the purchase price or associated costs, the tax would instead be calculated on the sale price multiplied by a rate between 2% and 10%, depending on how long the property was held (10% for ownership under 2 years, 2% for over 10 years).

Dr. Le Xuan Nghia, economic expert, called this approach to using taxes to control housing prices an “illusion”:

“Tax is an input cost that will inevitably be added to the selling price. In the end, it is the homebuyer who bears the burden.”

He warned that implementing such a policy at this time could lead to another market freeze, with widespread negative impacts on banking, construction, materials, and even employment.

Real Estate's Weight in the Economy Requires Careful Consideration

Dr. Nghia emphasized that real estate’s role in the economy is far greater than what appears on the surface:

• Real estate market capitalization is typically three times a nation’s GDP.

• Globally, with GDP at $120 trillion USD, real estate is valued at around $350 trillion USD.

• In China, GDP is about $19.5 trillion USD, while real estate is worth $57 trillion USD.

Therefore, any policy affecting real estate could trigger chain reactions across the economy. When the market freezes, transactions stall, and the credit system—including banks holding collateralized real estate—faces serious risks.

Avoid Changing Tax Policy During a Delicate Transition

Mr. Huynh Phuoc Nghia, an expert from the University of Economics in Ho Chi Minh City, also emphasized:

“The government is already preparing major amendments to the Land Law 2024. Introducing a completely new PIT policy on real estate transfers at the same time would create overlapping pressure on the market.”

Especially when Vietnam currently lacks a complete real estate database and land price frameworks remain inconsistent, enforcing such a tax would be both unfair and difficult to manage.

He recommended maintaining the current flat 2% PIT on sale price. Only when there is a transparent and comprehensive real estate data system should taxation on actual profit from real estate transfers be considered.

Flexible Proposal: Two Tax Options for Sellers to Choose

During the transition phase, experts suggest offering two options for PIT on real estate transfers:

1. 20% on taxable income, if sellers can prove purchase cost and expenses.

2. 2% on selling price, for simplicity or when documents are unavailable.

This approach would help prevent market shock, encourage greater transparency, and align with Vietnam’s current technological and legal infrastructure.

Long-Term Solution: Legal Reform and Supply Expansion, Not Higher Taxes

The recent property price surge in Vietnam stems not only from speculation, but also from:

• Supply shortages,

• Regulatory bottlenecks,

• Inefficient land use planning,

• Delays in project approvals.

Thus, raising taxes isn’t a sustainable solution and could further increase property prices, triggering side effects like:

• Higher office rental costs,

• Difficulty for businesses to expand,

• Reduced attractiveness for foreign and domestic investors.

“To regulate the market, we must first untangle legal issues, enhance transparency, and boost supply. Only then can a healthy and rational price structure be established,” Dr. Huynh Phuoc Nghia said.

Exercise Caution with Real Estate PIT During Recovery

Vietnam’s real estate market is at a critical and fragile turning point. Imposing a steep PIT of 20% or a progressive tax based on ownership duration now risks reversing recovery, reducing liquidity, and dragging down national growth.

The prudent approach is to maintain policy stability while investing in foundational reforms such as digital land databases, fair valuation mechanisms, and transparent transaction registration. Only then can Vietnam build a healthy, sustainable, and investor-friendly real estate market.