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THE REVISED DRAFT LAND LAW
Implication for the Business Community
In the 10 years following its enactment in 1993, the Land Law has been
revised twice in 1998 and 2001, and is currently undergoing its
third revision; this revision is considered to be the most
comprehensive attempt to bring the Law more in line with the
practical requirements of a market-oriented economy while clarifying
and strengthening the State's role in managing land resources. There
are ongoing debates as to how the Law should be revised among
various circles, due to its extensive impact on business activities
as well and citizens' lives in general. Below is a summary of the
major changes between the current Law and the proposed draft Law and
their potential impact on business activities.
Mechanisms to determine the price of Land-Use Rights (LUR).
Under the current Land
Law, the prices of LUR are determined solely by the State. The
revised draft Law allows for application of additional
market-oriented measures to determine prices of LUR, including
auction, competitive bidding, valuation by an external consultant,
etc. On one hand, this is considered a positive development by the
business community, as it creates a flexible legal framework in
which the market rules of supply and demand apply to property
transactions. On the other hand, it raises concerns among
businesspeople in terms of how these different pricing mechanisms
will be applied, and whether they will be consistent and fair. For
example, the price that a company pays for LUR to the State through
auction or competitive bidding or to individual transferors is the
market price; however, if the company uses its LUR in a business
transaction such as capital contribution in a joint-venture, as
mortgage or as collateral, the price can be determined by the State
framework, which might be significantly lower than the market price.
 Ownership
of land
The draft Land Law
re-confirms public ownership of land, and the role of the State as
the representative with the ultimate authority to dispose of and
benefit from land. There is ongoing debate regarding this issue of
ownership. There are some who argue that since the State recognizes
a LUR owner's right to transfer land, lease it to another party and
contribute it as capital for a joint venture, etc., in essence, this
means that the State recognizes private ownership of land; thus
contradicting the stipulation on public ownership of land. Others
argue that the issue of public or State ownership is not the core
problem, and that debating this point will not resolve the land
issues in Vietnam. In a discussion forum on the draft Land Law,
several participants stated that the core problems that need to be
resolved are poor land planning and administration, and the lack of
a thorough research effort to understand land issues (VNExpress 15
August 2003).
Authority of land planning, allocation, leasing and pricing
Under the current Law, the
power to allocate and lease LUR belongs to provincial authorities.
Under the new draft Law, the authority to allocate and lease land to
households and individuals is delegated to the lower level of
administration [i.e. district, town or provincial-level city], but
for businesses, that authority still remains at the province or
central-level city. This new delegation of authority gives local
government more power to decide on investment projects in their
localities; however, it does raise the question as to whether the
stipulation will hinder business growth, as some businesses may
purposely remain small and informal (e.g. choose to remain household
businesses rather than registering as companies) in order to gain
easier access to LUR.
Under the draft Law,
Provincial People's Committees are authorized to annually determine
a pricing structure for LUR in their own province (based on the
Central Government's framework). On one hand, this stipulation
provides local authorities with flexibility in setting LUR prices to
attract and encourage investment. On the other hand, it raises the
question that if land prices are subject to change every year and
can differ greatly between provinces, will businesses that have made
long-term investments in infrastructure on land in particular
provinces be at risk?
Rights
of land-users under different leasehold terms
The draft Law stipulates
that land-users who rent land on an annual basis will no longer have
the right to transfer, sub lease, mortgage or contribute the LUR as
capital, etc., whereas land-users who have been allocated land [and
have paid a land-use fee] continue to have these rights. How will
businesses that currently pay rent on an annual basis land be
affected if they lose these rights? Will those who have bought or
inherited properties on short-term leasehold land be guaranteed
first priority to continue renting from the State? If so, what will
the rental price be? Moreover, the draft Law requires businesses
that want to acquire LUR through allocation to pay the land-use fee
up-front and in-full, which will certainly increase initial
investment costs for all businesses. Will smaller businesses that do
not have the capital to pay up-front be disproportionately
disadvantaged?
Repossession of land by the State
The draft Law stipulates
land will be repossessed if a proposed investment project does not
put the land into use within 12 months of the date of
allocation/lease approval, or falls over 24 months behind the
original implementation schedule. Although the purpose of this
stipulation could be to minimize the possibility of businesses
speculating on land rather than using it for productive purposes, it
also creates concern among businesses because there may be
unavoidable delays in project implementation, businesses will lose a
lot of the money they have invested for the LUR and on the land
itself if the land is repossessed.
Capital
gains tax on transfer of LUR
This tax will replace the
current LUR transfer tax, and seems to be intended to reduce land
speculation and increase the State's tax revenues. Businesses are
justifiably concerned about the specific rate of this tax [which is
not stipulated in the draft Law] and how the Tax Authority will
determine the transfer price upon which the tax will be calculated. |
