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Tax agencies puzzled by ambiguous tax rule
Ho Chi Minh City’s tax authorities are facing difficulties in calculating the taxes for personal income earned from the transfer of contracts for apartment purchase due to an ambiguous circular on this area.
According to Circular No.12 issued by the Ministry of Finance, taxable income from the transfer of contracts for apartment purchase is determined by the total transfer price - which is calculated based on the price at the trading floor - minus the total purchasing price written in the purchasing contract.
The tax rate applicable to this income is 25 percent. If it is impossible to determine prices at trading floors, the tax rate of 2 percent of the total purchasing price written in the contract will apply.
But the application of this circular proves to be problematic, according to many municipal tax agencies.
Tax agencies said they did not know how to calculate the tax in case the price at the trading floor is determined but the transferor fails to prove the purchasing price.
In another case, when the apartment’s low price turns much higher after many transfers, if the 25 percent rate is applied, the tax can be as much as ten times higher than if the 2 percent rate is used.
The application of the 2-percent rate on the total purchasing price poses another problem.
There are apartments that were bought ten years ago at low prices of less than VND1 billion but are now being transferred at VND10 billion.
It would be unreasonable to apply the 2-percent rate on the purchasing prices since there are cases when these prices were lower than those required by the municipal People’s Committee, tax agencies said.
A recent case
Recently, Mai Linh, a resident who has transferred the contract for the purchase of an apartment in the Thu Thiem Xanh project in District 2 was informed by the district’s Tax Agency that she had to pay an income tax of VND21.3 million for the transaction.
Linh has complained to the tax agency that the tax is much more than the VND6-million profit she earned from the transaction.
In response, the tax authorities said they had failed to determine the price at the trading floor in order to calculate the total transfer price, and thus had followed Circular No.12 to apply the rate of 2 percent on the total purchasing price.
Linh however said that it was not difficult to get the price at the trading floor and apply the 25 percent rate on the income since many customers are demanding the apartment’s investor to transfer the contracts at original prices.
Linh added that the current tax is 21 times higher than the tax in a similar transaction she made last year.
In October 2010, Linh had to pay only VND1 million, which was 25 percent of the VND4-million profit earned from the transferring of the contract for the purchase of another apartment in the Thu Thiem Xanh project. “It’s unreasonable for the two transactions that were made with the same apartment project and the same transfer price to be taxed so differently,” she lamented.
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