Minister of finance discusses future financial reform

Following months of uncertainty caused by the proposal of a capital gains tax on securities transactions, Minister of Finance Chang Sheng-ford, who took office on May 31, recently shared his views on the prospects of tax and financial reform with a group of reporters, including ‘Taipei Times’ staff reporter Amy Su

Mon, Jun 25, 2012 - Page 13

Taipei Times (TT): How do you view the prospects for tax reform? Will a capital gains tax on property transactions be the next step?

Chang Sheng-ford (張盛和): We will not discuss the introduction of a capital gains tax on property transactions until the system for the registration of property sales prices, which will be launched next month, is in place and running smoothly.

In addition, the Constitution stipulates that the nation should levy an incremental land value tax, which divides the taxation of property into two distinct systems — land and housing taxes. This makes it that much harder to propose amendments to a property-based capital gains tax.

The Ministry of Finance does not yet have a timetable for the imposition of a capital gains tax on property transactions because we first need to forge a broad-based consensus on the issue.

TT: How then does the ministry hope to meet the expectations of social groups, many of which are calling on the government to speed up the introduction of a tax on property transactions?

Chang: There are many measures that would fulfill the goal of introducing a capital gains tax on property transactions, we do not necessarily have to choose the hardest one.

Many of the people who criticize existing property taxes are -particularly bothered by the distortions in current land value — the basis for the land value increment tax — which is often much lower than the market price and tends to result in land being under taxed. However, we could address that problem by establishing a more accurate land value evaluation system.

In addition, the application of the capital gain tax on property transactions could be incremental — as with the capital gains tax on stock investments — if consensus is reached.

For example, the ministry might choose to start with a tax on property transactions involving properties that have been held for less than one year, instead of launching a completely new system. That would lower the cost of the ministry’s tax allocations and minimize the impact on the housing market.

TT: What about an energy tax?

Chang: Given that public criticism of policy changes and reforms is to be expected, priority will be given to reaching consensus before any new tax is introduced.

As to an energy tax, the ministry has a draft proposal that can be submitted anytime. Once the concept of “paying for use” is broadly accepted, the ministry will submit the proposal to the legislature.

TT: Other than the issue of tax reform, what other financial reforms can we expect in the future?

Chang: The ministry will continue to hold monthly meetings to discuss the necessity and feasibility of amending certain laws.

The ministry’s National Treasury Agency, Taxation Agency, Department of Customs -Administration and Directorate General of Customs will take turns chairing these meetings.

The ministry’s task force on national taxation and finance will continue its work. For example, meetings are planned around the nation from next month to August. These will focus on management of the nation’s debt, local government financial problems and measures to activate state-owned assets.

The ministry will review the results of the task force’s discussions and propose draft amendments to the legislature during its next session in September if necessary.

TT: Any additional thoughts about the activation of state-owned assets?

Chang: Other than the build-operate-transfer measures widely used by the government in the past, we are considering launching a private finance initiative, to provide funds for major capital -investments with private firms contracted to complete and manage the projects.

TT: Many have said that mergers led by state-controlled banks could help solve the “over-banking” problem in the banking sector and further enhance competitiveness. What is your view on this idea?

Chang: State-run banks should not be merged solely for the purpose of achieving greater scale and enhanced profitability, a point that is particularly true for Bank of Taiwan (台灣銀行) and Land Bank of Taiwan (土地銀行), which are important policy tools.

Even if the ministry remains a major shareholder in state-run banks, the managers of those institutions need to evaluate the feasibility of mergers and acquisition, because a merger of state-run banks will only take place when it offers tangible benefits for both parties.