Mon, Feb 09, 2015 - Page 8 News List

EDITORIAL: Chang faces tough tax decisions

It was nearly one year ago when Minister of Finance Chang Sheng-ford (張盛和) made public his fiscal reform package — which includes raising the business tax for banking and insurance institutions as well as increasing consolidated income tax on high-income groups — as the ministry aimed to increase the nation’s tax revenue to about NT$80 billion (US$2.54 billion) per year and narrow the government’s budget gap.

At that time, Chang said fiscal reforms had to be taken step by step, and added that reforming the property tax could be the next step if the nation is to achieve long-term fiscal soundness.

Chang did not disappoint the people who supported him, despite worries from others fearing his measures would force funds to flow out of real-estate investments. According to the government’s latest tax income data, the national treasury collected a record NT$1.96 trillion in tax revenues last year, 4.8 percent higher than the ministry’s budget target and a record high.

Chang’s active promotion of tough tax reforms prompted The Banker, an English-language monthly owned by The Financial Times Ltd, last month to crown him “Finance Minister of the Year.” The UK magazine praised Chang, the first minister from Taiwan to win the award, for making efforts to address worsening income disparity and housing unaffordability.

Certainly, there are people who do not think Chang deserves the award. However, there is no doubt that the high cost of housing in Taipei and a rising wealth gap have created considerable political support for his tax reforms. Recent polls have indicated that most people would like the ministry to apply an effective capital gains tax on the sale of properties, with tax based on the actual transaction price instead of the government-assessed value, in a bid to ease the problem of housing affordability, which has been exacerbated in recent years by not only rising housing prices, but also by stagnant wage growth.

Therefore, if the ministry were to water down its draft combined tax on house and land sales to a flat rate of 17 percent that reportedly applied only to housing bought after 2011, rather than an original proposal with progressive tax rates ranging from 5 to 45 percent, the planned measure is unlikely to effectively curb housing prices more than the existing luxury tax, which is a special sales levy of between 10 and 15 percent on houses resold within two years of purchase, nor the mortgage lending limits on domestic lenders imposed by the central bank.

Moreover, this reportedly lighter taxation would create a new wave of real-estate speculation because it would actually reduce the investment costs for short-term speculators after the phase-out of luxury tax — as the tax base for the former is capital gains, and transaction price for the latter.

This potential change in policy on the single annual tax applicable to the sale of both land and houses leaves a lot of questions unanswered, regarding what caused Chang to change his mind and whether the government has the determination to fulfill the principle of fair and reasonable tax reforms.

The ministry is expected to announce the details of the combined tax proposal before the Lunar New Year, along with supplementary measures and other tax reductions and exemptions for property owners. Chang has long believed that tax reforms could be a powerful tool to stabilize Taiwan’s property market and achieve a fairer and more equitable society. However, if he cannot withstand the backlash from some lawmakers and the Cabinet, the fate of the planned property tax measure would be just like the capital gains tax on securities transaction — the government would try to impose fair taxation on stock investments, but to no avail. In addition, his reforms could lead to little additional tax revenues, and a further loss of public confidence in the government.

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