Regulations banning the use of profits from property alienation to cover losses in other businesses discourage property firms from expanding their investments and make tax policies seem unfair, experts said.
Under the established tax regulations, firms are allowed to use the profits of other businesses to make up for losses incurred in their real estate business. However, if the real estate alienation business earns profits, these profits must be declared separately for tax calculations and cannot be used to balance losses elsewhere.
“The regulations have proven to be unreasonable and in conflict with the spirit of the Law on Investment 2014, which enables firms to invest in all sectors except prohibited ones,” Lê Hoàng Châu, president of the HCM City Real Estate Association, said.
Châu said most business lines were now allowed to account for profits and losses when calculating tax obligations in multi-sector firms following a full offsetting mechanism, but this was not fully applicable to the real estate business.
“This is unfair to property firms, and the regulations should be eliminated,” Châu said.
Lawyer Trương Thanh Đức, from the Basico law firm, said real estate was not listed as a conditional business sector, which had a requirement to conduct business, and noted that many property firms had diversified their businesses, such as Hoàng Anh Gia Lai, Mai Linh Group, Quốc Cường Gia Lai and Thuduc House.
According to Đức, when a real estate business is profitable but many other business lines have incurred losses, the firm may suffer losses overall but still have to pay corporate income tax on profits from the real estate business. “This sounds unreasonable,” Đức said. Property firms would be discouraged from investing in other sectors.
The regulations were put into effect in 2004 when the property market of Việt Nam was on its way to a boom and was expected to generate large profits.
Nguyễn Ngọc Thành, deputy president of the Việt Nam Real Estate Association, said the property market went through a boom and bust period since then, and the regulations have now become outdated given the differences between the current state of the market and that of a decade ago.
According to Nguyễn Văn Đính, general secretary of the Việt Nam Property Brokers, property was not a “super-profitable” sector as has long been assumed.
He cited statistics revealing that more than 70 per cent of the country’s 1,700 firms with a real estate business line were operating on a small scale, with charter capital below VNĐ50 billion (US$2.24 million). In addition, some 80 per cent of the capital for property businesses came from bank loans.
Amending the regulations is necessary to ensure tax fairness among businesses and to improve the business climate, Đính said.