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Government tax loophole may be plugged by rules

"We hope the legislature can help facilitate the new taxation scheme to meet the January deadline."

Minister of Finance Lin Chuan

The Ministry of Finance is mulling measures to cancel a tax loophole that allows high-income taxpayers to donate property to the government that has been purchased at below assessed values in return for tax deductions, Minister of Finance Lin Chuan (林全) said yesterday.

"By no later than the end of this year the finance ministry hopes to put an end to the tax loophole," Lin told reporters during a press conference yesterday.

The loophole allows high-income taxpayers to deduct 40 percent of the difference between the assesed value of a property and the actual purchase price of the parcel.

Goverment assessed values are often far higher than actual market prices.

While the donations may not be illegal, they set a bad example of unfair taxation, Lin said.

Lin added that the government, however, would offer a grace period for high-income taxpayers, real-estate brokers and potential landlords -- likely to be financially disadvantaged by the new taxation scheme -- to finalize ongoing deals before the measures go into effect.

The new taxation scheme will not be retroactive on taxpayers who previously took advantage of the law, Lin said.

He said that the government has lost NT$13 million in tax revenues in 2001, NT$6.7 billion last year and is expected to lose some NT$22.7 billion this year.

The ministry plans to encourage local governments to purchase land for public works by allocating subsidies instead of depending on donations, Lin said.

He added that the ministry would hammer out a final plan soon and submit it to the Cabinet for approval.

In addition, the ministry said it will permanently lower the incremental land-value tax -- a capital gains tax on property transactions -- by an average of 20 percent, starting next year.

Pending legislative approval, the top tax rate on land transactions will be permanently reduced from 60 percent to 40 percent, Lin said.

"We hope the legislature can help facilitate the new taxation scheme to meet the January deadline," Lin said.

In late 2001, then premier Chang Chun-hsiung (張俊雄) cut the land tax by half, from 60 percent to 30 percent, for a period of two years.

The new tax scheme took effect early last year and is expected to come to an end next January.
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