Nearly two years after its implementation, the government is planning to revise the luxury tax rather than abolish it, the Ministry of Finance said on Wednesday.
The ministry introduced the special sales tax, also known as the luxury tax, on June 1, 2011, in a bid to deal with soaring property prices in some of the nation’s major urban areas.
In late December last year, the ministry commissioned the Chunghua Association of Public Finance (中華財政學會) to study the effect of the tax and to propose ways of improving it.
The results of the study, led by National Taipei College of Business taxation professor Yophy Huang (黃耀輝), are expected to be released in July, exactly two years after the introduction of the tax, the ministry’s taxation agency deputy director-general Hsu Tzu-mei (許慈美) said.
Hsu said the ministry does not have any firm opinion on the long-term future of the luxury tax, but said that it hopes to keep it in place, with the form and application of the tax to be reviewed further.
Under the luxury tax, the government imposed a 15 percent tax on properties resold within one year of purchase and a 10 percent tax on those resold within two years of purchase.
As of the end of January, the government had collected NT$6.72 billion (US$226.22 million) through the tax, with NT$4.29 billion attributable to real-estate transactions, according to the ministry’s data.
However, lower-than-expected revenue contributions from the luxury tax has raised public doubt over its effectiveness, as the ministry had previously said the tax would generate about NT$15 billion in annual revenue for the national coffers.
In addition, some commentators have said that the luxury tax has done little to cool speculative transactions in the property market.
In particular, the tax failed to cover real-estate transactions on pre-sale housing, offering speculators a loophole.
Hsu disagreed, saying that the luxury tax has had some effect in curbing speculative transactions in the real-estate market.
Meanwhile, the lower-than-expected revenue generated by the tax actually indicates that speculation in the real-estate market has declined faster than the ministry’s expectations, she added.
A total of 12.1 percent of properties were bought for investment purposes in the third quarter of last year, down from 18.5 percent recorded during the same period in 2010 — the year before implementation of the tax, indicating a decline in speculative transactions, Hsu said, citing data from the Ministry of the Interior.
Meanwhile, the number of property transfers in Taiwan dropped 18.92 percent last year from 2010, with Taipei and New Taipei City (新北市) marking the two largest declines of 39.11 percent and 36.08 percent respectively, the data showed.
On the price front, data from the Joint Credit Information Center (JCIC, 金融聯合徵信中心) showed average house prices in Taipei dropped 2.13 percent in the first quarter of last year compared with the previous year, marking the largest drop in the nation’s major urban areas.
However, in many other urban areas in Taiwan, including New Taipei City, Greater Tainan and Greater Kaohsiung, average house prices still reported an upward trend during the same period, the ministry said.