The government’s push for an integrated sales tax on homes and land with rates higher than previously thought is laudable, although there are still other issues of housing affordability and wealth inequality that need policymakers’ attention. However, lawmakers across party lines have every reason to take action soon.
After several rounds of deliberation on a plan drafted by the Ministry of Finance, the Cabinet last week finalized its review of the hotly debated property tax reforms. Under the Cabinet’s draft proposal, beginning next year, the government would impose a capital gains tax from 15 percent to 45 percent on property transactions depending on the duration of ownership. The draft proposal also provides a tax break of NT$4 million (US$130,668) for transactions involving properties owned longer than six years.
The Cabinet’s draft has three major differences from the previous plan proposed by the Ministry of Finance: the tax rates for property transactions are higher; tax exemptions are applied only to the first NT$4 million gained from the sale of a property, rather than for those sold for less than NT$40 million; it would not be retroactive and its implementation would be applicable to all properties purchased after Jan. 1 next year, as well as those bought after Jan. 2 last year, but sold within two years.
If the Cabinet’s proposal clears the legislative floor by the end of this legislative session, it would effectively replace the special sales levy, better known as the “luxury tax,” which subjects residential properties resold within two years of purchase to levies of up to 15 percent of transaction prices instead of realized gains.
The Cabinet estimates that 8,400 housing units would be affected in the first year of the new tax, 19,000 in the second year, 48,000 in the fifth year and 120,000 in the 10th.
That being said, uncertainties still loom large over the latest tax proposal, because the Cabinet has demanded that the ministry hold three public hearings nationwide this week and make adjustments if necessary, before submitting the proposal to the Legislative Yuan’s secretariat.
This raises the question of whether lawmakers will be able to complete their review of the proposal before the legislative session goes into summer recess next month. If the draft is to be reviewed by lawmakers in the next legislative session, which starts in September, it is unclear if the new tax could take effect next year, since officials and lawmakers are likely to be preoccupied with other issues linked to next year’s presidential and legislative elections.
Last year, Academia Sinica issued a report on tax reform that suggested that the government impose a capital gains tax on property transactions to ensure fair taxation, as an unfair tax system has led to growing social and economic inequality in Taiwan. The report said the current tax breaks for rich people and large companies have only widened the wealth gap while increasing government debt.
Laudable as the Cabinet’s tax proposal is, it might be a bit modest. Some critics have questioned the proposal’s ability to really curb housing prices, as the new tax would actually create less of a tax burden on most people than the luxury tax.
Lawmakers must deliberate on what should be done to make the proposal meet the public’s expectations of fair and reasonable tax reforms. An effective reform package should generate additional tax revenues and, most importantly, help regain public confidence in the government.
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