Currently, the Government is drafting Decrees guiding the Land Law 2024 so that they can be synchronized to take effect on August 1, 2024, with the Law Amending 04 Laws just passed at the 7th session of the 15th National Assembly. In particular, the draft Decree on land use levies and land rents (Draft Decree) plays a critical role in promoting and orienting the development of enterprises. However, according to the provisions of the Draft Decree, the issue of calculating land use levy as adjusting the detailed planning has many problems that need to be considered and assessed for impact in multiple different cases, especially for manufacturing enterprises to ensure the goal of promoting enterprises to reinvest, expand production.
Principles of recalculation of land use levy when investors adjust detailed planning
Currently, according to the provisions of Articles 14 and 36 of the Draft Decree, land use levy and land rent paid in one lump sum for the whole lease period when the investor requests to adjust the detailed planning will be recalculated according to the following principles:
Recalculated land use levy and land rent paid in one lump sum for the whole lease period | = | Land use levy and land rent according to the adjusted detailed planning | – | Paid land use levy and land rent |
The recalculation of land use levy will be applied when the investors request to adjust the detailed planning and then it is approved, which changes the land use structure, location of each type of land, and land use coefficient. According to the Draft Decree, the principle of recalculating the land use levy as above is fundamentally in line with the orientation “How much land the investor uses, the same amount of land levy will be paid” and is especially suitable for real estate projects in general because land use efficiency will be calculated based on the project’s selling price at different times. Suppose the project benefits from the framework infrastructure invested by the State. In that case, when the investor requests to adjust the detailed planning to better exploit the land, the land use levy must be recalculated. This will have an indirect impact on overcoming the situation where some investors have completed the project but have not yet put the land into business and are waiting for later stages to sell at better prices, thereby increasing the speed and efficiency of land use. However, if the above regulations are applied to manufacturing and business enterprises, there are certain shortcomings.
For manufacturing enterprises, when starting to implement the project, the cost of land use has been included in the enterprises’ feasibility study. Therefore, after investing in construction and being granted land use rights, enterprises need to expand production and business, they have the right to adjust the detailed planning to change the land use structure, location of each type of land, and land use coefficient if permitted by State management agencies. According to the principle of the Draft Decree, the land use levy must be recalculated at current prices, and the previously paid amount will only be deducted as part of the advance payment, regardless of the slippage of money and the increase in land prices over time. This is not in line with reality. Manufacturing enterprises do not conduct real estate business, so they cannot directly collect money from their land fund. Having to recalculate the land use levy at the current price will cause a huge cost burden, while they only expand production and the land use cost in the usual scale increase should only be calculated for the extension, but cannot be calculated for the entire project land area from the beginning.
A simple example of the above principle (excluding specific technical parameters) is the case of a production project with a scale of 20 hectares, with an allowable construction density of 50%, and the fulfillment of financial obligations in 2015 with an amount of 10 billion VND (equivalent to 01 billion VND/ha). Up to now, due to the need to expand production, the enterprise has requested to adjust the detailed planning to increase the construction density from 50% to 60% and was approved by the State management agencies. Assuming the current land price applied to the project is 2 billion VND/ha, according to the principles of the Daft Decree, the additional land use levy the enterprise must pay is 14 billion VND, calculated as follows:
Land use levy and land rent based on the land price as adjusting detailed planning | – | Paid land use levy and land rent | = | Recalculated Land use levy and land rent paid in one lump sum for the whole lease period |
(12 x 2) billion VND | 10 billion VND | 14 billion VND |
Thus, instead of only calculating the land use levy for an additional 2 hectares of 4 billion VND, the calculation method of the Draft Decree will make the land use cost of the project up to 14 billion VND, which can completely suppress the will to expand investment and production of enterprises because the initial feasible study has been broken when the amount of money used land increased from 10 billion VND to 20 billion VND (with construction density of 50% when the investor proposed the project).
Appropriate adjustments are needed
The process of implementing a project often takes a long time and is affected by many different factors, so adjusting business strategies to suit new situations often happens. For manufacturing enterprises, land is a basic but not essential means of production, factors such as customers, partners, and technology,… occupy a higher position. Therefore, to be able to create the best conditions for the production and business process, flexible policies are required to support enterprises in adjusting to suit the reality of the market, including the expansion or reduction of production scale reflected in the adjustment of the detailed planning of the project. This is not only meaningful for enterprises but also helps improve the current business investment environment when Vietnam is looking to attract more investment capital in important manufacturing sectors. If there are no appropriate policies, will the current major FDI partners such as Samsung, LG, Intel,… want to expand their production scale at existing locations when they have to pay all the land use levíe based on increased market prices for the whole project from the current time back to the beginning?
In addition, for real estate projects, the new regulations are relatively appropriate, but there are still some cases that need to be considered and regulated more specifically. For example, the Draft Decree stipulates that when the investor requests to adjust the detailed planning to change the land use structure, location of each type of land, and land use coefficient, the land use levy for the whole project must be recalculated, however, in case the investor requests to reduce the scale or increase criteria such as trees and social infrastructure, will it be required to recalculate land use levies for the entire project at the present time? Meanwhile, the increase in green trees and social infrastructure targets are both policies that the State is encouraging. If investors adjust the detailed planning of the project to increase the target to build social housing and are forced to recalculate the entire land use levy for the whole project at the present time, almost no investor will implement it. We are encouraging the development of social housing, so we need to have land policies to synchronize and create conditions for enterprises to implement, which the current Draft Decree has not been able to implement.
In order to overcome the above limitations, it is very necessary for the drafting committee of the Decree on land use levy and land rent to make adjustments to thoroughly solve the case of adjustment of detailed planning of manufacturing enterprises. In the draft Decree issued in April 2024, the drafting committee has quite open regulations when allowing only the calculation of land use levy for the additional planning expenditure with the current land price, but by the draft of July 2024, this option is no longer available. Therefore, the drafting committee needs to consider applying this option to the case of production and business projects that are not real estate projects. In addition, it is also considered to apply this calculation method to real estate projects where investors propose to adjust the detailed planning but reduce the land use structure, location of each type of land, and land use coefficient instead of only hard regulations to “change” the land use structure, the location of each type of land, the land use coefficient as it is now. At the same time, it is also considered to apply to the case of increasing the land use structure, location of each type of land, and land use coefficient but serving the development goals of social housing or other social infrastructure in general. When the above situation is overcome, the Decree will truly promote the full potential of land, thereby promoting economic and social development.
LLM-Lawyer. Tran Dai Nghia Investment project legal policy expert
