Fierce public objections about its proposal to impose value-added tax (VAT) on the transfer of land-use rights have forced the Ministry of Finance to shelve the move.

In August last year, the ministry drafted a bill to amend and supplement articles of the tax law. Regarding VAT on land-use rights transfer, it proposed to tax it at the standard VAT rate of 10 per cent.

This proposal immediately faced adverse reactions from the real estate sector. According to many experts, the increase of VAT will increase the price of properties and significantly affect the absorption rate of the market by putting a damper on housing demand.

Le Hoang Chau, chairman of HCM City Real Estate Association, told Phap Luat (HCM City Law) newspaper that imposing VAT could cause double taxation, which would push up land prices. Current taxes and fees applied to the transfer of land-use rights already include taxes on transfer of these rights, registration fees and personal income tax on sellers.

“The real-estate market ultilises thousands of products from more than 90 sectors, such as the manufacturing, construction and service sectors. Therefore, the imposition of VAT will lead to higher prices of raw materials and labour, lifting the price of houses,” Chau added.

Sharing the same idea, economist Ngo Tri Long said the newly-proposed VAT would put a massive burden on home buyers and the whole real estate market.

Nguyen Duy Minh, director of the L&L Group, agreed, saying that applying VAT would put real-estate businesses in difficulties, forcing them to increase house prices.

Therefore, he said the abolishment of the VAT would help stabilise the real-estate market. Stable tax policies help prevent houses price from fluctuating, encouraging people to invest more,” Minh said.

Economist Nguyen Tri Hieu said that applying VAT on the transfer of land-use rights would result in market fluctuations, indirectly affecting other sectors.

“Houses price increases would make people tighten spending. Real-estate companies would find it difficult to sell houses, would lose profits and the State would lose tax,” Hieu said.