Real estate tax collection: Clearing legal gaps to avoid “tax evasion”

It can be seen that in the Vietnam real estate market in recent years, many individuals and businesses when dealing in real estate, most of them try to declare a lower price than the notarized contract for the purpose of tax evasion.

Besides the people’s low sense of self-discipline to fulfill their tax obligations, more importantly, the current legal documents have not yet provided for a mechanism to control cash flow for real estate transactions. This will create a legal vacuum for organizations and individuals to declare and pay taxes lower than the actual transaction value.

Risks for real estate buyers

Most of the time, when paying for the purchase of a product, the buyer requires the seller to write down the purchase amount on the contract 20-35% lower than the actual amount in order to receive a reduction in the value-added tax payable to the State. With a small plot of land, the tax amount is not much reduced. But with land plots costing up to hundreds of billions of dong, the “disparity” is huge (this amount is outside the contract, completely without any proof).

According to Article 200 of the Penal Code 2015 and the Law amending and supplementing a number of articles of the Penal Code, individuals who commit tax evasion for the first time with an amount of less than 100 million VND will be administratively sanctioned, may be fined up to 4.5 billion VND or imprisoned for up to 7 years.

According to Ms. Ly Thi Hoai Huong – Deputy Director of Tax Administration Department of Small and Medium Enterprises and Individual Business Households (General Department of Taxation), it arises a case of real estate transfer with the price shown on the contract which is not the same as the price shown in the actual transaction. Buyers and sellers can agree and make two types of contracts in parallel.

To conduct out the registration procedures for fluctuations, the real estate transfer contract is notarized and validated according to regulations, with the claimed house price substantially lower than the actual land price of the transaction. To avoid court battles, the second option is a handwritten contract signed by both parties at the actual transaction price.

In fact, according to Ms. Ly Thi Hoai Huong, there are many cases of new land auction winning documents after obtaining a certificate of resale contract at a much lower price than the winning auction price or equal to the price of the People’s Committee of the province or city.

In fact, over the past time, many organizations and individuals have been sanctioned or prosecuted by the authorities for tax evasion-related acts. For example, recently in Ho Chi Minh City, the District 10 Tax Department has discovered many apartment sales with a transfer value of up to 4 – 5 billion VND but declared and paid tax with a value of only 1/5 (approximately 1 billion VND). This sub-department has transferred the file to request the police to investigate and clarify.

Closely manage tax in the transfer

Deputy Director of Tax Administration Department for Small and Medium Enterprises and Individual Business households (General Department of Taxation) Ly Thi Hoai Huong said that the management of real estate transfer activities currently faces many difficulties. Because it involves a lot of laws as well as many departments and agencies.

In addition, according to the tax law, if the taxpayer declares and pays tax not in accordance with the actual transfer price, the tax authority has the right to impose tax. However, the tax authorities do not have the investigating function, so the collection of information as a basis for tax assessment faces many obstacles.

More importantly, the current legal documents do not stipulate a mechanism to control cash flow for real estate transfer transactions. This will create a legal vacuum for organizations and individuals to declare and pay taxes lower than the actual transaction value.

Recently, the People’s Committee of Bac Giang province has just issued a document directing departments and localities to strengthen the fight against tax loss in business activities and real estate transfer.

This unit requested the Department of Justice to coordinate with other departments to detect and handle “false” notarization, “suspended” notarization of contracts and real estate transactions, and at the same time strengthen the management of real estate transactions. With notarization and authentication activities, it is strictly forbidden to notarize the “suspension” of transaction contracts, especially real estate transaction contracts.

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