'Loophole' in house rental tax in Hai Duong

Many ways to "circumvent" the law

According to current regulations, individuals who rent out houses and properties with revenue of over VND100 million/year (equivalent to about VND8.3 million/month or more) must declare and pay taxes. In fact, many cases of property rental have income higher than the above threshold but still do not declare and pay taxes.

In Ecoriver urban area (Hai Duong city), there are some high-end shophouses with an average rental price of 15-20 million VND/month (from 180-240 million VND/year), meaning the rental revenue is twice as high as the prescribed threshold, but the apartment owners still "forget" to declare and pay taxes.

According to Mr. Vu Dang Khoa, Deputy Head of the Hai Duong City Tax Department, the situation of "evading" tax on house rentals is very common, both in apartments and townhouses, including street-front houses. The most common way is to make two contracts: one rental contract stating the real price, one contract "lending" the house.

Many street-front houses, when tax officers observed changes in tenants, business lines, etc., came to ask, the property owners showed them the "lending" house contract. Although the tax authorities invited them to discuss, even asked them to make a commitment that if they were discovered later, they would be fined, collect back taxes, etc., in reality, they could not handle it because according to regulations, the homeowners have the right to dispose of their property.

“In many cases, information is only revealed after the two parties have a dispute and sue each other in court. Only when the court sends the documents to the tax authority will the tax authority have a basis for handling the case,” Mr. Khoa shared.

Another common way to “dodge” taxes is to write a lower price than the actual price so that you don’t have to pay taxes or pay less taxes. According to some tax officials who specialize in managing property rental activities, the key to apartment renters being able to “dodge” taxes is mainly because when renting between individuals, the tenant doesn’t need invoices or documents, so the renters also… avoid declaring taxes.

In Le Xa village, Cam Phuc commune (Cam Giang), there is a household that built hundreds of rooms for industrial park workers and laborers far from home to rent. However, the owner of the boarding house did not declare or pay taxes because he thought that after the Covid-19 pandemic, companies had less work, so the number of tenants decreased a lot and they could not live stably. The rental price is only 200,000-300,000 VND/room/month, so it is not yet at the tax threshold. Not to mention, the boarding rooms are in the premises of one household but are said to be owned by many owners, all of whom are children and grandchildren in the family who invested in building them for rent...

“In the commune, there are often over 4,000 to nearly 5,000 temporary residents, concentrated in boarding houses in Le Xa and Tan Co villages. But up to now, no one who rents out boarding houses has declared and paid taxes,” informed the leader of Cam Phuc Commune People's Committee.

This is also the common situation in areas with many industrial parks and clusters such as Tan Truong, Lai Cach, Luong Dien (Cam Giang), Lai Vu, Phu Thai (Kim Thanh), Ai Quoc (Hai Duong City)...

Need a synchronized solution

Tan Truong Commune (Cam Giang) has nearly 2,600 people registered for temporary residence. Many farmers have given up their land for industrial development, and are now using their surplus garden land to build boarding houses. “If we have to pay taxes, we should also calculate and deduct the annual depreciation of assets due to the initial investment by the people. Because the income from renting boarding houses is the main, even the only, income of some households at present,” Mr. Vu Van Thuan, Chairman of Tan Truong Commune People's Committee, suggested.

For convenience in living and working, Mr. Nguyen Van Khanh in Hai Duong City rented out his apartment in Thuong Dat village, An Thuong commune to rent a small apartment in Tran Hung Dao apartment building. “The rental fee for the whole house in the suburbs is only equivalent to the rental fee for my apartment. Therefore, if my apartment rental is subject to tax, the rental fee should be deducted,” Mr. Khanh said.

According to the provincial Tax Department, salaried workers and business people are subject to stricter tax management. Meanwhile, people who have rented out apartments for many years have been “circumventing” the law to avoid paying taxes. Budget revenue from this activity is therefore limited, and a synchronous solution is needed to effectively manage taxes on rental housing and property.

There should be a policy to encourage people who own houses, properties for rent or tenants to declare the real price. For example, house rent is deductible when paying personal income tax of the tenant; or business households are deducted house rent when paying taxes; deduct depreciation of assets, investment in upgrading assets... In case of intentionally declaring low prices to evade taxes, there should be heavy fines and collection to deter...

In the immediate future, there should be regulations binding relevant parties such as local authorities, notaries, tax authorities, courts, land registration agencies, etc. in combating false declaration of house purchase and rental prices.

On the other hand, according to regulations, tenants must register for temporary residence, and it is necessary to connect information between tax authorities and local police to manage house rental and leasing activities.