It has become increasingly clear that people should not expect anything significant to be done in President Ma Ying-jeou’s (馬英九) final year in office. Yet the government is pushing for an integrated house and land sales tax that would affect 8,495 housing units in the first year under the new scheme.
Facing growing public concern about the negative impacts of rising house prices on the creation of a more equitable distribution of wealth, it is no surprise that the government has geared up for the new property tax ahead of the presidential and legislative elections next year.
On Friday, lawmakers across party lines approved the amendments to the Income Tax Act (所得稅法) regarding a capital gains tax on property transactions based on combinations of buildings and land. The bill, which had been debated between the administrative and legislative branches of government over the past 12 months, was passed just days prior to the legislative session going into summer recess.
The new tax will 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. A capital gains tax of between 15 percent and 45 percent will be imposed on property transactions depending on the duration of ownership, while self-use residential property owners will face a 10 percent flat tax rate if they make more than NT$4 million (US$128,900) in profit from transactions.
The new tax is much harsher than the previous draft, but was generally accepted by all parties. It will actually create less tax burden on most people than the special sales levy, or the “luxury tax,” which is to be scrapped next year if the new tax is implemented.
The new tax scheme is a significant change from the current arrangements, because capital gains are to be calculated on the basis of the actual market value of house and land, rather than the so-called “publicly announced value” that is assessed by local governments, but is often a mere fraction of actual prices of property transactions.
Now that the tax bill has cleared the legislative floor with the policy uncertainty risk removed, the development of the local property market is expected to return to normal and the overall transaction volume is expected to increase later this year, as many people took a wait-and-see attitude to house purchases in the past few months. If the history of foreign property markets is any indicator, Taiwan’s move to a capital gains tax on property transactions may prompt property speculators to sell before next year to avoid heavy taxes on hoarding.
However, it is still too early to tell whether the new tax scheme will prove to be the straw that breaks the camel’s back, even though the local market has long been deemed ready for a pricing correction after more than a decade-long boom, and a central bank interest rate increase is expected next year.
If the government cannot set in motion other measures to help guide the market liquidity to fund real economic activity, rather than be channeled into speculation in the property or stock markets, as well as fix legal loopholes and enforce laws preventing wealthy foreigners — especially Chinese — from gambling on Taiwan’s property market, there is no chance that prices will show a faster and deeper decline in the market, while concerns about housing affordability are likely to continue to weigh on public sentiment at a time when the government needs to regain the nation’s trust.
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