Thu, Aug 30, 2007 - Page 12 News List

Land Tax Act to be friendlier to owners

PREFERENTIAL MOVE Despite the losses in tax revenues that the new mechanism would entail, officials are confident it will bring new life to the local real estate sector

By Jimmy Chuang and Jessie Ho  /  STAFF REPORTERS

The Cabinet approved amendments to the Land Tax Act (土地稅法) yesterday allowing homeowners to enjoy a preferential 10 percent rate of land value incremental tax throughout one's lifetime, with certain conditions.

Under the present system, homeowners are entitled to land value incremental tax rates of up to 40 percent and can only enjoy the 10 percent rate once in a lifetime when selling a property.

The proposed amendments will need further review by the legislature and are expected to take effect at the beginning of next year at the earliest, the Cabinet said following a regular weekly meeting hosted by Premier Chang Chun-hsiung (張俊雄).

"These new measures will fit most people's needs in terms of selling and buying new homes," Chang said.

In 2002, the government temporarily halved the land value incremental tax -- a capital gains tax on property transactions -- for a trial period of two years and later extended it by an extra year in a bid to revive the sagging real estate market.

In 2005, the legislature approved amendments to permanently cut the tax by 20 percent, lowering the maximum rate to 40 percent from 60 percent.

The amendments announced yesterday and submitted to the legislature for further approval will allow homeowners to enjoy the 10 percent rate more than once, although some conditions must first be met.

To qualify for the lower tax rate, homeowners must have possessed their household registration at the location for more than six years and must prove they never leased or used the property as an office or for any other commercial purposes in the five years prior to the sale, the Ministry of Finance said in a statement issued later yesterday.

Restrictions also apply to land size, with only land plots measuring less than 45 pings in urban areas and 105 pings in rural areas qualifying for the lower tax rate, the statement said.

Deputy Minister of Finance Chang Sheng-ford (張盛和) said that 68.45 percent of Taiwanese would have be able to enjoy the lower tax rate when selling a home.

He said the new regime would mean government losses of NT$6 billion (US$182 million) to NT$8 billion in annual tax revenues.

"But we are quite certain that this new mechanism will reinvigorate the local real estate business," Chang Sheng-ford said after the Cabinet meeting.

He said ministry data showed that homeowners would buy and sell their properties an average of three to four times in a lifetime. This was the main reason behind the decision to amend the law and make it more flexible, he said.

Tax specialists had long argued that in order to make efficient use of the nation's land, the government should reduce the tax rate on land transactions.

However, the new tax measure will be of limited help to the housing market, said Su Chi-jung (蘇啟榮), a director at Sinyi Real Estate Inc (信義房屋), the nation's largest housing agency.

During the past six years, despite the climbing price of land sparked by a sizzling property market, the announced land value -- the basis on which the land value incremental tax is calculated -- has changed very little, with a 3 percent increase each year, Su said.

The raise in the announced land value means that even without the preferential tax system, homeowners did not have to pay much land value incremental tax, he said.

The tax is even slimmer for apartment owners in high-rise buildings, as the share of land they own is even smaller, Su said.

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