8/14/2023

Property tax
Kien Tran Trung
School of Public Finance, UEH

2
COURSE CONTENT
Chapter 1: Property Tax - A Situation Analysis and Overview

Chapter 2: Value-Based Approaches to Property Taxation

Chapter 3: The Politics of the Property Tax

Chapter 4: Administration of Local Taxes

Chapter 5: Property tax reform

Chapter 6-8: Property tax management in Viet Nam

8/14/2023

Chapter 1

Property Tax: A Situation

Analysis and Overview
Kien Tran Trung
School of Public Finance, UEH
 8/14/2023

M ai n t op i cs
I t ’s w h a t w e d i s c u s s t o d ay - Basic concepts
- Roles of property tax
- Introduce property tax
over the world
- Challenges of the
property tax

Basic concepts
Property, Asset, Real Estate, Land
Property tax and Taxation on property transactions
Property valuation
Roles of property tax

Property, Asset,
Real Property, Real Estate, Land

6
 8/14/2023

Property
7

• What is property?
General: Quality or thing owned or possessed.
Law: Article, item, or thing owned with the
rights of possession, use, and enjoyment, and
which the owner can bestow, collateralize,
encumber, mortgage, sell, or transfer, and can
exclude everyone else from it.

(businessdictionary.com)

Property and Assets ???

➢ Property is a legal concept encompassing all

the interests, rights and benefits related to
ownership.
➢ In accounting terminology, assets are
resources controlled by an entity as a result of
past events and from which some future
economic benefits are expected to flow to the
entity.

Property
9

Property

Real Personal
Property Property
 8/14/2023

10

Real property and personal property

11

Real property and personal property

Two basic kinds of property :
(1) Personal (anything other than real property)
which does not involve geographical fixity.
Personal property is subdivided into tangible
property (any physical animate or inanimate object)
and intangible property (intellectual property).
(2) Real (land), involving a degree of geographical
fixity.

12

Personal Property

➢ Personal property includes interests intangible

and intangible items which are not real estate.
➢ Items of tangible personal property are not
permanently affixed to real estate and are
generally characterized by their moveability.
 8/14/2023

13

Real Property

➢ Real property is distinguished from most goods

and services because of the relatively longer
period required to market what is a relatively
illiquid commodity in order to achieve a price
that represents its Market Value.

14

Real Property

➢ This characteristically longer exposure time, the

absence of a `spot market' (a market in which
commodities are available for immediate
sale),and the nature and diversity of properties
and property markets give rise to the need for
Professional Valuers and Valuation Standards

15

Real Property and Real estate ???

➢ Real Property is kind of property, which envolves a
degree of geographical fixity. It is a legal concept
encompassing all the interests, rights and benefits
related to ownership.
➢ Real Property consists of the rights of ownership, which
entitle the owner to a specific interest or interests in
what is owned.
➢ To distinguish between Real estate, which is a
physical entity, and its ownership, which is a legal
concept, the ownership of real estate is called real
property.
 8/14/2023

16

The bundle of rights of Real Property

➢ The combination of rights associated with the
ownership of real property is referred to as the
bundle of rights.
➢ The bundle-of-rights concept likens property
ownership to a bundle of sticks with each
stick representing a distinct and separate right
of the property owner, e.g., the right touse, to
sell, to lease, to give away, or to choose to
exercise all or none of these rights.

17

Real Estate

➢ Real estate is defined as the physical land and

those human-made items, which attach to the
land. It is the physical, tangible "thing" which
can be seen and touched, together with all
additions on, above, or below the ground.

18

Real Property and land

Land is essential to our lives and our existence.
Its importance brings land into focus for
consideration by lawyers, geographers ,
sociologists, and economists.
As each of these disciplines relates to land and to
uses of land, the societies and nations of our
world are affected.
 8/14/2023

19

Land

➢ Land is regarded as a permanent asset, but

improvements upon or to the land have a finite
life.
➢ Because of the immobility of land, each real
estate parcel possesses a unique location.

➢ Land's permanence also means that it will

normally be expected to outlast uses and
improvements, which have a finite life.

20

Property and land

➢ Valuation of land as if vacant or of land and
improvements to or on the land, is an
economic concept.
➢ Whether vacant or improved, land is also
referred to as real estate.
➢ Value is created by real estate's utility, or
capacity to satisfy the needs and wants of
human societies.

21

Immovable property

➢ The concept of “immovable property ”, as

defined in the Civil Code of Vietnam, includes
(a) land; (b) houses and constructions attached
to the land; including properties annexed to
such houses and constructions; (c) other
properties attached to the land; (d) other
properties specified by law.
 8/14/2023

22

Property Tax

22

23

Property tax

24

Indirect taxes Market Indirect taxes

Individuals Companies

PIT income CIT

properties

Property taxes
 8/14/2023

25

Property tax
A property tax is usually an ad valorem tax on
the value of a property, usually levied on real
estate.
The tax is levied by the governing authority of
the jurisdiction in which the property is located.
.

26

Property tax
The four broad types of property taxes are land,
improvements to land (immovable man-made
objects, such as buildings), personal property
(movable man-made objects) and intangible
property.
Real property is the combination of land and
improvements.

27

The scope of this course

The property and property transactions
examined in this course are based around real
property (ie, land) and its associated
infrastructure (ie, buildings).
 8/14/2023

28

Taxation of Property
Transactions

28

29

Taxation of Property Transactions

Property transactions are one of the most

common and significant dealings forming a large
part of just about every Federal and State tax base.
.

30

Taxation of Property Transactions

Property transactions are such an important part of

everyday personal and business life, not only on
sale or purchase, but also from leasing and the
payment of rent through to use of land and
buildings in business or other income producing
activities.
 8/14/2023

31

Taxation of Property Transactions

This includes all income tax, CGT, GST, land tax

and stamp duty consequences of acquiring,
holding, developing, building on, leasing,
disposing of or otherwise dealing with land and
buildings, including various real property
investment options.

32

Vietnam taxation of Property Transactions

- Personal income tax;

- Corporate income tax;
- Value added tax.
- Stamp tax

33

Property Valuation

33
 8/14/2023

34
Basic Idea of Taxes on Real Property

The basic idea underlying nearly all

taxes on land is that the tax should
be a function of the productive
capacity of the land (and often
permanent improvements)

➔ Market value
of Property

34

35

Property Valuation
Under a property-tax system and Taxation of
Property Transactions, the government requires
or performs an appraisal of the monetary value
of each property, and tax is assessed in
proportion to that value.

36

Property valuation
✓ The experience of Professional Property Valuers and
dialogue among nations through the International
Valuation Standards Committee (IVSC) have
demonstrated that, with few exceptions, there is
common worldwide agreement regarding
fundamentals that underpin the valuation discipline.
 8/14/2023

37

Property valuation
✓ Local laws and economic circumstances may, on
occasion, require special (and sometimes limited)
applications, but fundamentals of valuation
methods and techniques are generally similar
throughout the world.

38

Principles Applied In Valuing Real Estate

Many recognized principles are applied in

valuing real estate. They include the principles
of:
➢ Supply and demand;
➢ Competition;
➢ Substitution;
➢ Anticipation, or expectation;
➢ Change; and others.

39

Roles of property tax

Roles of property tax and local government
The upside and downside op property tax
 8/14/2023

40

Roles of property tax

WHY IS PROPERTY TAX THE IDEAL TAX
FOR LOCAL GOVERNMENTS ?

41
Taxes are classified in various ways:
Taxing
Taxpayer Tax base
jurisdiction

Direct Consumption Federal

taxes taxes taxes

Indirect Income State

taxes taxes taxes

Property Local
taxes taxes

LOCAL GOVERNMENTS
42

Local governments in every

country supply a range of goods
and services:

+ Those that exhibit mainly

‘private good’ characteristics
+ Those that exhibit mainly
‘public good’ characteristics.
-
 8/14/2023

LOCAL GOVERMENTS
43

For services with mainly ‘private good’

characteristics, individual beneficiaries can be
identified, income redistribution is not a primary
goal, and spillovers are unlikely to exist

→ User fees are the most appropriate financing

tool

LOCAL GOVERMENTS
44

For services providing mainly collective or

‘public good’ benefits, specific beneficiaries
cannot be identified.

→ User fees are inappropriate.

→ These should be funded from a local tax
imposed on residents with necessary
adjustments through the use of grants to
account for spillovers.

45

The upside and downside op

property tax

45
 8/14/2023

THE UPSIDE OF PROPERTY TAX

46

→The property tax meets the criteria for a good

local tax better than the alternatives of personal
income or consumption based taxes:
+ Its tax base is largely immobile.
+ Revenue is generally predictable and stable
+ It is highly visible and fair as long is it covers
the cost of providing those services that provide
collective benefits to the local community.

THE DOWNSIDE OF PROPERTY TAX

47

A potential downside of a local property tax is

that it may be more expensive to administer
than other local taxes.
→ It may be a small price to pay if local
governments are to have autonomy and
flexibility in setting tax policy

48

Introduce property tax over the world

Circumstances
Objective of the course
 8/14/2023

49

Circumstances

49

50
PROPERTY TAX

The property tax is an important revenue source

for local governments across the world.

There are substantial differences across

countries in the structural and administrative
components of the property tax.
They face task of building an effective
property tax system where no such system
currently exists.

8/14/2023

51
Challenges
The basic idea underlying nearly all taxes on
land is that the tax should be a function of the
productive capacity of the land (and often
permanent improvements) → maintaining a
clear conceptual link between taxable value
and property productivity.
→Tracking these changes and incorporating
them appropriately into estimates of taxable
value are daunting administrative tasks
requiring both human and financial resources
and the political will to keep tax rolls up to
date.
→For a variety of political reasons,
policymakers may choose to overuse tax
exemptions that erode the tax base.
 8/14/2023

52
Governments across the globe are in
one of three circumstances:

➢ They largely ignore taxes tied to land;

➢ They struggle to maintain efficient and

effective property tax systems in the
face of dynamic markets and political
resistance;

➢ They face task of building an effective

property tax system where no such
system currently exists.

THE PROPERTY TAX OVER THE WORLD

53

The relative importance of the property tax, of

course, varies from country to country. It
depends on:
→ The range of services funded by the tax.
→ The distribution of expenditure
responsibilities between the local government
and the senior levels of government.
→ The relative importance of grants from senior
levels of government.
→ The ability of the local government to
administer a local tax.

54

Objective of the course

54
 8/14/2023

55
We look for an effective property tax
system where no such system currently
exists.

THE OBJECTIVES OF THIS COURSE

Theory Application
Explore in detail the choices Explore the practical issues
regarding both the structure of “property tax” in Vietnam
and administration of the
property tax
→ Study current “property
→ Review property taxes tax” law and tax on property
around the world. transactions in Vietnam.
→ Discuss & present the
criteria to help choose
among the options.
8/14/2023

56

Structure of this course

➢ Theory
- Introduction
- Property tax
- Taxation of Property Transactions
➢ Application in Vietnam ( Vietnamese)
- Real Property management in Vietnam
- Property tax in Vietnam
- Vietnam taxation on property transactions
➢ Presentation

57

Challenges of property tax

Choice of tax base
Issues in assessment
Choice of tax rate
 8/14/2023

58

Effective property tax system

58

59

Property tax policy

issues

Effective property tax

system

Property tax
administration issues

60
PROPERTY TAX POLICY
To operationalize the property tax requires a mix of
choices regarding design issues:

- What property will be taxed? (land, improvements,

personal property)
- What is the basis of the tax? (market value, rental
value, area)
- Who will the tax be imposed on? (owner or user)
- What will the tax rate structure be ? (a flat rate or
rates that differ by value, type or location of
property)
- What options will be available to enforce collection ?
(Fine, foreclosures, unable to trade)
8/14/2023
 8/14/2023

61
PROPERTY TAX ADMINISTRATION
Developing administrative procedures involves
addressing such tasks as:

- Identifying the property to be taxed

- Determining the taxable basis of each
property?
- Identifying the taxpayer for each property
- Setting the tax rate or rates
- Invoicing the tax payer
- Collecting the tax

8/14/2023

62

Effective property tax system

Assessment Tax rate

Determining the tax base

62

63

Choice of tax base

 8/14/2023

CHOICE OF TAX BASE

64

There is no uniform property tax base or

method of assessment that applies in every
country.
+ Tax base: land, both land and buildings, area.
+ Method of assessment: valued based
assessment (market value, rental value); area
based assessment.

→ Valued based assessment vs Area

based assessment ???

65

Issues in assessment
1.Property identification
2.Uniformity in assessment
3.Responsibility for assessment
4.Frequency of assessment
5.Appeals mechanism and
Assessment technique

66

1.Property identification
(Xác định bất động sản)

66
 8/14/2023

PROPERTY IDENTIFICATION
67

+ All taxable properties must be identified

and described on the assessment roll with
each property assigned a roll number →
This number is important for linking
assessment information with tax billing and
property transfer records.

+ The assessment roll should include taxable

necessary information → This information
should be reported in a consistent way and
a process should be established to update
assessment annually or as frequently as
administratively possible.

PROPERTY IDENTIFICATION
69

Property identification is often difficult in

developing countries and transitional
economies:
→ Maps for property identification may not
exist;
→ Property ownership data may not be
provided because of disputes over who owns
what;
→ Information on improvements may be
missing;
→ Building permit information may not be
provided to the taxing authority

PROPERTY IDENTIFICATION
70

Property identification is often difficult in

developing countries and transitional
economies:
→ Tax records may be identified by
taxpayer and not by property;
→ Land and building records may be
maintained by different agencies and not
linked;
→ Computerized tax records may not exist
because of the expense;
→ Tax records may be considered secret.
 8/14/2023

71

2.Uniformity in assessment
(Sự không thống nhất trong việc định giá)

71

72

Uniformity
or
Non-Uniformity

72

UNIFORMITY IN ASSESSMENT
73

1. Uniform within each taxing

jurisdiction.
2. Uniformity in assessing properties
3. Uniformity in setting tax rate
(discuss later)
 8/14/2023

UNIFORM WITHIN EACH TAXING

74

JURISDICTION.

❖ Decentralization or centralization
If property taxes are to be fair in their
application, they must be based on
assessments that are uniform within
each taxing jurisdiction.
Uniformity is most easily achieved when
the assessment function is centralized at
the regional/state/provincial level.
→ Autonomy of each local government
???

SUGGESTIONS FOR PROPERTY TAX

83

REFORM
To ensure that the assessment system operates
effectively and fairly there are at least two
things that must be avoided:
(1) Capping or freezing assessment
(2) Utilizing preferential assessments

Autonomy and flexibility of local governments

vs Uniformity ???
Political pressure vs Uniformity ???

84

3.Responsibility for assessment

(Cấp thẩm quyền định giá)

84
 8/14/2023

RESPONSIBILITY FOR ASSESSMENT

85

Reliance on a centralized uniform assessment

manual is critical, but the way in which the
assessment is carried out may also be important.

A centralized agency (region-wide) responsible

for assessment has a further advantage. It is
able to benefit from economies of scale that
might not be available to each municipality if
each were to carry out its own assessment

RESPONSIBILITY FOR ASSESSMENT

86

Major problem with this approach is that, it is

almost certain to lead to under estimates of
property values → Not only is this unfair, it
erodes the size of the tax base leading to higher
tax rates and/or lower levels of service than
would otherwise be the case (Bird and Slack,
2004a).
→ Does a centralized agency (region-wide) or
each municipality have responsibility for
assessment ???

87

4.Frequency of assessment
(Tần suất định giá)

87
 8/14/2023

FREQUENCY OF ASSESSMENT
88

Periodic valuations and revaluations must be

undertaken to ensure that assessment is kept up
to date.
In value based systems, a shorter time frame for
reassessment is preferred.

FREQUENCY OF ASSESSMENT
89

In value based systems, a shorter time frame for

reassessment is preferred:
+ This helps in maintaining the legitimacy of the
tax base
+ This reduces the risk of sudden and dramatic
changes in tax burdens that often arise when
reassessments are conducted sporadically and
infrequently
→ High cost ???

90

5.Appeals mechanism and assessment technique

(Cơ chế kháng cáo và kỹ thuật định giá)

90
 8/14/2023

APPEALS MECHANISM AND

91

ASSESSMENT TECHNIQUE
An important component of a well-run
assessment system is an effective appeals
Mechanism and Assessment technique. 
Finance and human resource requirement

92
APPEALS MECHANISM AND ASSESSMENT
TECHNIQUE
(1) In most cases, this starts with a reassessment
by the assessment authority to correct factual
errors and resolve minor differences of
opinion over the value of the property.
(2) If differences cannot be resolved, the
taxpayer should be able to proceed to a
higher authority, generally made up of
valuation experts.
(3) There may be a further stage whereby the
appeal could go to a specialized tax court

93

Issues in setting
tax rate
Setting the property tax rate
Variable tax rates versus uniform rates
Other land and property related taxes
 8/14/2023

94

Effective property tax system

Assessment Tax rate

94

95

1. Setting the property

tax rate

95

SETTING THE PROPERTY TAX RATE

96

(1)The first step is for the local government to

determine its expenditure requirements or
needs.
(2) The second step is for the local government
to subtract all non-property tax revenues.
(3) The third step is to divide the required
property tax revenues by the property tax base
to get the property tax rate.
 8/14/2023

SETTING THE PROPERTY TAX RATE

97

→ On the established theme that the most

transparent, efficient and accountable local
government is one that is responsible for
raising its own revenue, it follows that local
governments should be responsible for setting
their own tax rates.
Failure to permit and require this means that the
close link between decisions over revenue
generation and expenditure decisions is lost.

98

2.Variable tax rates versus uniform

rates

98

99

Uniformity
or
Non-Uniformity

99
 8/14/2023

VARIABLE TAX RATES VERSUS UNIFORM

100

RATES
A single uniform property tax rate to all
properties within its taxing jurisdiction

Or

Different (variable) tax rates that vary with the

cost of servicing different properties by type or
by location within a municipality or rates that
may vary for other reasons

VARIABLE TAX RATES VERSUS UNIFORM

101

RATES
Variable tax rates have a number of advantages:
(1) First, they are also fair on the basis of
benefits received as long as the rates are set
to capture the cost of municipal services used
up by different property types or property
location.

VARIABLE TAX RATES VERSUS UNIFORM

102

RATES
Variable tax rates have a number of advantages:
(2) They are efficient if designed to recover the
cost of local public services consumed – no
incentive would exist for a household or firm to
alter its behavior or location to avoid the tax as
long as it matched the cost of services used up.
 8/14/2023

VARIABLE TAX RATES VERSUS UNIFORM

103

RATES
Variable tax rates have a number of advantages:
(3) They are efficient as long as higher tax rates
apply to tax bases that are most inelastic in
supply.

VARIABLE TAX RATES VERSUS UNIFORM

104

RATES
Variable tax rates have a number of advantages:
(4) Variable tax rates have a further advantage in
that they could be used to distort decisions
deliberately to achieve certain municipal land use
objectives.

105

Other land and property related

taxes used by local governments

105
 8/14/2023

OTHER LAND AND PROPERTY RELATED

106

TAXES
In addition to the property tax, there are a number
of additional land based taxes that are employed
in virtually every country.
- The range of charges is extensive:
(1) Development charges, special assessments and
value capture levies.
(2) Transfer taxes, capital gains taxes, stamp
duties, inheritance taxes, value-added taxes.

OTHER LAND AND PROPERTY RELATED

107

TAXES
Development charges
- It is used to recover the off-site costs of capital
infrastructure required to service new
development or growth.
- A development charge or lot levy corresponds
best to the benefits-received principle when
the costs and benefits of the infrastructure for
each property can be determined.

OTHER LAND AND PROPERTY RELATED

108

TAXES
Special assessment (land betterment tax)
- A special assessment is a specific charge added
to the existing property tax to pay for improved
capital facilities that border on them.
→ foot frontage and zone assessments
 8/14/2023

OTHER LAND AND PROPERTY RELATED

109

TAXES
Value capture levy.
- It can be designed to recover the increase in
land value arising from a public investment.
- The levy permits the municipality to capture
(some of) the economic rents accruing to the
private sector that have been created by this
local infrastructure spending.

110

Case study

110

HIGHER TAXATION OF BUSINESS

111

PROPERTIES
 8/14/2023

HIGHER TAXATION OF BUSINESS

112

PROPERTIES
The taxation of business properties (commercial
and industrial) at higher tax rates than residential
properties is a common practice across
countries.

HIGHER TAXATION OF BUSINESS

113

PROPERTIES
Higher property taxation of commercial and
industrial properties creates a number of
efficiency and equity concerns.
(1) Efficiency in municipal service levels will not
be achieved if revenues collected from property
taxes on business properties are
used to subsidize services consumed by the
residential sector.

HIGHER TAXATION OF BUSINESS

114

PROPERTIES
Further concerns with the
over-taxation of the
commercial/industrial
sector arise because this
tax represents a fixed
charge that must be paid.
 8/14/2023

HIGHER TAXATION OF BUSINESS

115

PROPERTIES
There is also an issue of
whether this over-
taxation plays a role in
location decisions.

HIGHER TAXATION OF BUSINESS

116

PROPERTIES
(2) Equity is not achieved
either if those benefiting
from the services are not
paying full costs.

TAXATION OF BUSINESS PROPERTIES

117

(3) There are many positive effects that would

arise from shifting the relative tax burden away
from the business sector.
- A reduction in the relative property tax burden
on this sector reduces the potential for
exporting the property tax to non-residents
 8/14/2023

TAXATION OF BUSINESS PROPERTIES

118

Property Tax exporting refers to situations in

which some portion of the local tax burden is
borne by people who live elsewhere, either
through a change in relative commodity prices
or in a change in the net return to non-locally
owned factors of production (inputs in the
production process).

TAXATION OF BUSINESS PROPERTIES

119

The opportunity for the commercial/industrial

sector to export its property tax burden onto
residents of other municipalities has the
potential for misallocating resources and
lowering municipal accountability.

TAXATION OF BUSINESS PROPERTIES

120

- Capital invested in real property is usually

taxed at higher rates than capital invested in
other factors of production
→ The variation in capital tax rates is reduced if
this burden is altered.
 8/14/2023

PROPERTY TAXES AND URBAN SPRAWL

121

- Higher property taxes are expected to

discourage density.
Since the tax is levied on property, any
investment that increases the value of the
property will subject it to a higher tax.

PROPERTY TAXES AND URBAN SPRAWL

122

The density of development and its location

with respect to existing services influence the
costs of providing services.
→ An efficient property tax would reflect the
higher costs associated with providing services
in less dense developments.
→ Some taxpayers pay more or less for services
than the benefits they receive.

TAXATION OF BUSINESS PROPERTIES

123

A major defence of the over-taxation of business

properties is:
Businesses can deduct all expenses incurred in
earning income for their corporate income tax
base.

→ but owner-occupiers of residential dwellings

are not allowed similar deductions.
 8/14/2023

TAXATION OF BUSINESS PROPERTIES

124

The taxation of business properties (commercial

and industrial) at higher tax rates than residential
properties is a common practice across countries
→ Why ???

125

" S U C C E S S I S
W A L K I N G F R O M
F A I L U R E T O
F A I L U R E W I T H N O
L O S S O F
E N T H U S I A S M . ”
WI NS TO N CHU RCHI L L