The government's move yesterday to halve the "land value increment tax," a capital gains tax for property transactions, will do little to bring life to the slumping real estate market, analysts say.
"It's a mistake," said Steve Lin (
In addition, Lin said, the government will have a tough time making up a tax "shortfall of an estimated NT$40 billion to NT$50 billion this year."
Premier Chang Chun-hsiung (
The measure, which would reduce the top rate on land transactions from 60 percent to 30 percent, must now go to the legislature for approval.
Defending the proposal yesterday, the premier applied a little "supply-side" theory, saying the reduction may not mean less tax revenue if land transactions rise as a result of the cut.
"If property transactions are boosted and revenue from the tax to local governments increases, the central government may not need to make up the lost revenue to local governments," Chang told opposition lawmakers yesterday.
Chang also dismissed legislators' criticism that the tax cut would only benefit a few specific conglomerates.
Still, Lin said big business would likely be the biggest beneficiaries. "The Cabinet has caved in to pressure from the business community over the issue and quickly sent it on to the legislature," he said.
Even some DPP lawmakers oppose the tax-cut plan.
The party's caucus leader, Tsai Huang-lan (蔡煌瑯), said yesterday, however, that some legislators were concerned about a proposal to issue more government debt to make up for anticipated revenue losses resulting from the proposed cut.
The plan to issue the government debt was announced yesterday by government spokesman Su Tzen-ping (
The premier said the government forecasts losing roughly NT$10 billion as a result of the tax cut, which could be made up through increased property transactions.
But other estimates put the figure as high as NT$50 billion.
One market watcher took issue with the idea that the capital gains cut would lead to renewed interest in real estate and higher property sales.
"The problem with the real estate market is the over-supply of properties," said Victor Chang (
Taiwan currently has 1.2 million vacant housing units and not enough people who want to buy those homes.
Chang said more than 320,000 units were sold last year and expects the figure to fall to 250,000 this year as the economy slows.
"The increased demand for properties resulting from the tax cuts would be short-lived," he said.
"Moreover, after the two-year tax break, the number of land deals would fall sharply, as no more incentives would exist."
Despite analysts' doubt about the tax cut, the proposal is likely to pass in the legislature; the KMT has campaigned hard for the tax break.
The minister of finance, Yen Ching-chang (顏慶章), said yesterday that his ministry would come up with the necessary legislation soon in order to implement the proposal.
Chang instructed the finance ministry and the Directorate General of Budget, Accounting and Statistics to start discussing with local governments about how much revenue may be lost as a result of the tax cut, in order to come up with an accurate estimate.
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