VietNamNet Bridge – Nicolaus Tiderman, Prof of Economics, Virginia Polytechnic Institute & State University and Bruno Moser, International Consultant from International Land Economics were present at VietNamNet’s headquarter on Saturday, Oct. 14 to talk about the hottest issues nowadays: property speculation, corruption and tax policies, which are believed to have close links.

In Vietnam, Prof Nicolaus Tiderman has been known for his suggested project on land value taxation since he has come to Vietnam four times to introduce the project.

As proposed by Prof Tiderman, taxing land will help ensure so-called ‘social justice’, because the land taxation scheme will bring land to those who do not have land now.

Land taxation will also help offset the reduction in tax collection caused by Vietnam’s joining the WTO and tariff reduction.

The revenue from land taxation will also help the State to raise more money for the State budget which will be used for construction projects for public interests.

While many people do not have any land, several others have a lot of land, they are speculators. The land taxation will make the speculators change their minds: they would rather sell land plots than own a lot of land plots and have to pay tax land annually. As the result, the land will be transferred to the people that know how to use land most effectively.

Nevertheless, the convincing arguments by Prof Tiderman prove to be unfamiliar in Vietnam and it remains unclear whether the land tax will become effective in Vietnam.

Here are the questions raised by VietNamNet’s readers and the answers relating to the issues mentioned above by the two land experts.

I think your proposal/suggestion is good, but also challenging. What do you base your tax rate on? What could be the tax rate for people in mountainous region, those in rural areas, and those in the cities? Should there be different tax rates for different people?

Nicolaus Tiderman: The tax rate depends on the purchase for which you earn revenue. If you want to lower taxes, then the tax rates depends on how much you want to lower the taxes, and how much land you want to apply the tax to. If you want to raise revenue to revive public services, particularly local public services, then the tax rate depends on how much land you have, and how much you want to raise.

Bruno Moser: To make it simple, the tax rate should be the same, whether it is civil land, it depends on the use.

What are pros and cons of tax on land? What do other countries in the world impose tax on land?

Nicolaus Tiderman: The good side of tax on land is that it helps you get rid of, or reduce other taxes in the economy. Land tax does not restrict trade and employment the way other taxes do. The land tax also makes it easier for those people who are just starting their business to have access to land. And it discourages bankers from lending to whoever have not got property, and instead to lend to those who have good ideas.

The difficulty with land tax perhaps is that it infringes on the power of the people. People need to be persuaded to give up their power.

Most countries in the world have land tax. Some have little, some have a lot. Countries that have taxes on land tend to have more productive economies.

The more Vietnam taxes on land, the more rapidly it will become rich. Countries in Asia that have the most land tax are Singapore, Taiwan, Hong Kong, South Korea and Japan.

How do you think people can see the benefits of land tax. Most people do not see the benefits of land tax. What is the basis for land tax - the size of land or market land price? The size of land is fixed while the land price fluctuates. So what could be a good basis for land tax? I think both of these two tools are not perfect for tax.

Prof Nicolaus Tiderman.

Nicolaus Tiderman: The main way that you can see the real benefits of the land tax is the reduction in other taxes. The land tax helps you to reduce other taxes. A tax on land tends to lower their selling prices, and that would be difficult for people who want land as a goods, but it would be good for people who want land in order to use it. The land tax will lead to better access to land for everyone.

The amount of the tax does not depend on the area of the land, but rather on the value of the land. There are two different types of land values that we can tax. You can tax the selling price of the land, or the market value of land. If you want a fairly low land tax, it does not matter much which one you tax. But if you want to collect as much revenue as possible, then it is a good idea to base the tax on the market value of the land, because the selling prices will go down more and more as you raise the tax rate.

Vietnamese farmers are very poor, and do not have enough money to pay the land tax. How do you think we should impose land tax on them? I think most of people will try to evade tax.

Nicolaus Tiderman: The tax on land should be imposed first, maybe by a good record of who is the user of the piece of land, who is the person that have the land use rights; then you need to have a certain process that reflects the value of the land to be taxed. Then it is a good idea to allow a certain amount of value, perhaps the land value of difficult and poor farmers, as an exemption. And then you impose land tax based on the market value. So first you have a good record of who have the land use rights, then you can decide what could be the exemption for every person, and then you base the tax on the market value of the land.

Rich people have a lot of money, so paying a little more tax is no problem for them. For the poor people, however, the only valuable asset they have is land. So do you think that the imposition of land tax could cause people to anger, or lead to chaos or riots. Do you think that the government wants this?

Nicolaus Tiderman: Of course no government wants riots. And that is why I advocate a basic exemption for every person.

Bruno Moser: Again land tax is equal to rental value of land. The rich people often have valuable land parcels, and they can compensate the poor people for the extravagance they have. So it is more the tax on the rich than on the poor. And with regards to general taxes, there are certain taxes that cause conflict, and many are passed on to the poor.

Nicolaus Tiderman: More people will benefit from the reduction in value added tax (VAT).

No one in Vietnam wants to pay more taxes. So who in this country would support your suggestion? And those who support your suggestion could be strong enough to translate your suggestion into the law? And even when there are laws, the enforcement of the law remains a question.

Nicolaus Tiderman: We know that people do not like to pay tax, but we are looking for ways to increase tax revenues for the government. However, the land tax can help reduce or eliminate VAT, income tax, and tariffs so that the economy can be more productive. In other words, collecting revenue does not harm the economic performance.

Bruno Moser: It is important to know that the tax on land is the tax one can not evade. If you are a holder of red book, you pay as it is stated. It is a transparent tax, unlike the income tax, VAT, or the corporate tax which can be easily evaded. So the land is more just than the other taxes. Also the job for the administration is very simple, and not costly, whereas when you have income tax, it may cost you two dollars to raise one dollar of revenue.

Nicolaus Tiderman: Now Vietnam is holding discussion with the WTO to substitute for the tariff which you are not going to have any more. You have the law on public revenue, and you can get it back with land taxes. And when you do a project, for example, in Slovakia, they raise the value of the land. When you build a bridge, the land value goes up. When you build the railway for trains to go from Ho Chi Minh City to Nha Trang, that will raise the land value incredibly. There is a project here in Hanoi on the construction of a tram. That will change the value of land throughout Hanoi if you have a good public transport system. So having the land tax in place is a way to recapture what the public spend on infrastructure.

When you propose land tax, do you refer to our culture and history, because I know there are some Vietnamese people of different generations involved in your research team?

Mr Bruno Moser.

Bruno Moser: In Vietnam, it seems to me that everything is about the land. The Vietnamese people had to fight so hard to gain their sovereignty and independence. And it is culturally and politically recognised that the land is a common heritage to all the people. So the tax law of 2003 says that the land belongs to all the people, and the state manages. So everything is already in place in Vietnam to tax the land.

When you propose these kinds of tax, do you know which country specifically that has exactly the same conditions as Vietnam, already successfully applied this tax?

Nicolaus Tiderman: Two places that already have a lot of revenues from land taxes in Asia are Singapore and Hong Kong. They recapture all of these values for public services. Taiwan also has had strong revenues from land tax for long. Again, as you pointed out, people with power often have a lot of land, and over time, they like to change those good taxes into bad taxes, making people not know exactly how much they paid. We can see how much the damage they do on the economy. A country with high taxes do not attract foreign direct investment, and will not find job creation, and finally it will have a hard time as opposed to a nation that has low taxes and corruption. I would also add that in Switzerland, for example, communities or provinces that have low tax rate have higher land value. That means that low tax rate translates into higher land value. They are directly related.

How do people change their behaviours after the land tax is imposed? Will they try to evade land tax?

Nicolaus Tiderman: People always look for ways to avoid tax. But land tax is more difficult to avoid than other taxes because the property is there. As for the administration of the tax, we should have a public record of the exact value of every parcel, and a public record of anyone who has to pay tax. The amount of money that the government has from the tax corresponds to all the money that people have to pay. So there is no responsibility of avoiding the tax by hidden maneuvers.

Bruno Moser: Actually land is there, and with the public record for everyone to easily access to, there is no way to cheat or to do anything, and we can also deal with corruption.

Nicolaus Tiderman: You know well about Vietnam, so when do you think Vietnam can apply land tax?

Bruno Moser: You already have the land law which is the blue-print for land tax. The law states that the land belongs to the people, and one can get land use rights, and one has to pay land use fees. The land use right should not be confined or limited to the amount of years, 20 or 50 years. Rather it should be open-ended. It should be granted on condition that you use and pay annual rental value of the land. As long as you pay, you can use the parcel.

In addition, Vietnam has to look at public finance by the question of tariff, which is good because the tariff has to go away as it is harmful to the economy. Land tax can be a substitute, and help to reduce other taxes too.

Vietnam is really trying to fight against corruption. There are several studies that look at corruption related to 1. land management authorities, 2. traffic or transport, 3. tax authorities, 4. customs. So three out of four are related to land management.

What should be a feasible land tax rate for Vietnam? How much the tax rate should be, particularly in the rural areas?

Nicolaus Tiderman: The tax rate should be related to the rental value. Ideally, I recommend a tax that should collect at least 90% of the rental value of land; and I also recommend an exemption for a certain amount of value of land.

Bruno Moser: That means if somebody rents a parcel as a rice paddy, and he pays VND100,000 per year for that block to the red book holder, he should pay VND98,000 as tax to the community.

I don’t understand which are the good points in your proposal on land taxation. The taxation will lead to higher real estate price, and the poor people will not have accommodation.

Nicolaus Tiderman: I must say that land taxation will not lead to higher property price. As I said before, taxing land will help reduce land speculation, because the speculators would rather sell land plots than own a lot of land plots and have to pay tax land annually. Therefore, the market will cool down as the demand will decrease, which will result in property price decrease.

Is it true that people in rural areas will have to pay higher tax than people in urban areas, because they own larger land plots?

Nicolaus Tiderman: No. The land tax imposes on the value of the land. As land price in urban areas is always higher than in rural areas, cities’ residents will have to pay higher.

What do you think the Government of Vietnam should do to ensure the transparency in land management?

Bruno Moser: Making all the information about land price and land management policies publicly accessible.

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