Taiwan Cabinet Agrees To Halve Land Transactions Tax

by Mary Swire, Tax-News.com, Hong Kong

31 August 2001

The Taiwanese Cabinet yesterday finally approved a proposal to halve the land value increment tax, a capital gains tax for property transactions, for two years.

Premier Chang Chun-hsiung said the proposal was a "majority opinion" reached at the just-concluded plenary session of the Economic Development Advisory Council (EDAC). "Although it was not an EDAC consensus, the Cabinet still decided to implement the proposal because a Ministry of Finance (MOF) assessment showed that the measure could help revitalize the recession-hit local property market and even stimulate a domestic economic recovery," Chang explained.

The tax-reduction plan now needs the approval of the opposition-controlled Legislative Yuan. Chang directed the MOF and the Directorate-General of Budget, Accounting and Statistics (DGBAS) to consult with the legislature to facilitate the implementation of the proposal. "Relevant government officials must make concerted efforts to seek parliamentary support for the tax-cut proposal and necessary law revisions. Otherwise, the tax reduction plan can't be substantiated," Chang said. He assured opposition lawmakers that the Cabinet would take advantage of the two-year tax break to launch an overall tax reform and craft a more reasonable taxation system.

The land gains tax was the brainchild of Dr. Sun Yat-sen, founding father of the republic, before it was established in 1911. His rationale was to eliminate land monopolies of wealthy landlords and land profiteering. The design of the land increment tax might have been appropriate in Dr. Sun's day because the bulk of the nation's land was held by a small percentage of the total population. But the tax now acts as a brake on the property market: because most Chinese still consider selling land lots or houses inherited from ancestors as an undesirable deed, and because of the tax, many land lots have been owned by the same owners for a long time. An owner might be required to pay 60 percent in land gains tax if he or she intends to transfer ownership to his child; so the new law may well stimulate a burst of activity and could even increase collections from the tax.

The land value increment tax is basically a local tax, and Chang said the central government will reimburse local-level governments' financial losses resulting from the planned tax cut, which means that the current budget law will have to be changed to allow bond issues to be made to provide the cash for reimbursement.

Critics of the plan say that it will benefit only wealthy people and will be vulnerable to fraud; but Chang said 400,000 local people paid the land value increment tax last year. "It would be a deviation from reality to describe the plan as a biased measure in favor of a few financial groups," the premier stressed. In the first seven months of this year, Chang went on, land value increment tax revenues totaled slightly more than NT$20 billion.

There were mixed reactions to the plan from different groups of legislators and it was not immediately clear whether it would command a majority in the legislature.

Local business circles and bankers generally welcomed the planned tax cut. Senior bankers said the measure would help ease their burden on non-performing loans through an anticipated increase in real estate transactions following the implementation of the tax cut.

Responding to the Cabinet's tax-cut decision, local share prices surged 3.2 percent yesterday, with property, construction and banking issues leading the rally. The weighted price index gained 140.31 points to close at 4,508.69.

 

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