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Homebuyers concerned about developers' tax liabilities

Released at: 07:59, 20/07/2015

Homebuyers concerned about developers' tax liabilities

The licenses of projects owned by real estate developers with outstanding tax liabilities may be revoked, with the possibility that buyers may then not receive land use rights certificates.

by Bao Anh_ Hoai An

Real estate developers and homebuyers may have lost some sleep recently with a series of revelations about the tax liabilities of real estate enterprises. Of special concern was the Hanoi Department of Taxation’s announcement that it would revoke the project licenses of enterprises owing large amounts of tax, which may affect the issuance of land use rights certificates.

$1.1 billion in tax liabilities

According to the Deputy Director of the Hanoi Department of Taxation, Mr. Thai Dung Tien, the total tax liabilities of enterprises stands at VND23 trillion ($1.1 billion), with one enterprise owing VND320 billion ($14.9 million). Sixty-six enterprises had the largest debts, totaling VND4.6 trillion ($214 million). Total debts for land use tax was VND7.4 trillion ($344.2 million), of which VND3.2 trillion ($149 million) was owed by enterprises that apparently experienced no problems or difficulties.

Tax authorities named enterprises with outstanding tax payments as a means of shaming them into meeting their obligations. In the first six months of this year, by using a number of measures, the Hanoi Tax Department retrieved more than VND6.3 trillion ($293 million) in tax liabilities and penalties of VND4.6 trillion ($214 million), with a further VND1.7 trillion ($79 million) relating to land use taxes.

After the enterprises were named at the beginning of June, 22 made payments to the State coffers, of which five paid their outstanding taxes in full.

Mr. Tien, however, said that outstanding tax liabilities are still too high. The Department will therefore adopt stronger measures, such as freezing accounts and continuing to name those enterprises publicly. For businesses that violate the Land Law and delay payments for too long, the Department will recommend the Hanoi People’s Committee revoke the project license.

“When we see anything abnormal we will notify its headquarters and operations to warn all businesses,” said Mr. Tien. “We will also report the matter to the police to investigate and prosecute if necessary, as an example to others.”

Government incentives

The issue of tax liabilities stems from policies adopted by the government and the Hanoi’s People’s Committee at the beginning of 2013. Ministries and local departments were requested to work to resolve difficulties facing enterprises, including real estate enterprises.

The economic downturn put many businesses in a precarious position so incentives were introduced, such as tax reductions and exemptions and different forms of investment support.

In 2012 the Ministry of Natural Resources and Environment sent a document to the Hanoi and Ho Chi Minh City People’s Committees asking them to issue land use rights certificates to customers of developers with outstanding tax liabilities.

According to one business with tax liabilities, for several years the real estate market was developing, cash flows increased significantly, and they understood the punishment for not paying their tax liabilities. It became clear, though, that by depositing their tax payments in a bank they could earn an amount of interest that more than covered any fines that may be imposed for late tax payments.

Several enterprises did likewise, and at the time the State was “sympathetic” towards enterprises.

A representative from the Hanoi Department of Natural Resources and Environment pointed out that management agencies must also take some responsibility for delays in tax payments by enterprises. Most real estate projects being constructed or even completed were still subject to provisional land use fees by local authorities.

Consumers lose

Tax liabilities are now a topic of discussion because house owners and real estate investors that paid large amounts to real estate developers are now concerned that land use right certificates may not be issued if the developer has outstanding tax payments.

As Mr. Tien has said, the Hanoi Department of Taxation will propose the city revoke the project licenses of enterprises with outstanding tax obligations. The relationship between many developers and their customers is certain to be on rocky ground.

“I bought an apartment on Nguyen Trai Street invested by the Hanoi Housing Management and Development Company,” one customer said. “I recently read that the company owes a huge amount of tax. So now I wonder whether my apartment will receive legal certification or even if the project will be finished.”

Similarly, Ms. Nguyen Anh Hong, who bought apartments from the Trung Viet Investment and Construction Company in Ha Dong district, also expressed her concern over the company’s tax liability of more than VND193 billion ($9 million). “We just have to wait and see whether it’s a serious problem for the developer, because no one would want to buy the apartments now,” she said.

“People should not buy real estate products from the enterprises named because it will be very difficult for land use right certificates to be issued,” said Mr. Tien.

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