Sun, Dec 05, 2010 page8

• EDITORIAL: Can speculation be curbed?

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  The record foreclosure auction of an apartment unit at The Palace luxury complex in Taipei for NT$282 million (US$9.14 million), or about NT$2.06 million per ping (3.3m2), on Tuesday has prompted a public outcry.

  Most people felt great frustration and were concerned that absurdly high prices would continue pushing residential housing prices in the greater Taipei area higher; critics said the sale showed the government’s recent efforts to contain property prices had proven useless.

  Amid growing calls from the public for government action to deter rampant property speculation, the Ministry of Finance said on Friday it was mulling transaction taxes on homes and land sold within a year of purchase by either amending current tax regulations or drafting new laws.

  The ministry’s tax proposal, though not yet finalized, represents another step by the government in its efforts to stabilize the housing market amid concerns that overly high prices could provoke civic instability. It also came after recent market reports suggesting no sign of easing in real-estate sales and housing prices.

  At first glance, imposing a capital gains tax on the sale of real estate within a year of purchase would seem to help discourage speculative investment. However, it could be just a case of wishful thinking if the tax authorities have no clue as to what the transaction prices really are.

  In Taiwan, home and land transaction prices are usually not publicly disclosed. Unlike Singapore and Hong Kong, Taiwan has no transparency regarding real-estate information, which is known only between buyers and sellers, and therefore provides no benchmark for the calculation of a fair tax, let alone the problem of tax cheats.

  The ministry said it was studying establishing a fair value to serve as the base for the potential capital gains tax if its taxmen cannot determine the real transaction price. In the worst-case scenario, the ministry might have to use the “current assessed housing value” (房屋評定現值) to calculate the transaction price and the capital gains tax, but the problem is that a home’s current assessed value is far below its market value.

  The same problem applies to the “current assessed land value” (公告現值), which the government currently uses as the tax base for the land value increment tax (土地增值稅), which applies to any transfer in land ownership. According to the ministry’s data, a plot of land’s assessed value is about 80 percent of its market value in Taipei City, while the discrepancy between assessed value and actual market value is much wider elsewhere in Taiwan. The government also uses the land’s current assessed value, which is adjusted once a year, to calculate the compensation for land expropriation. However, there would be no land value increment tax if land changes hands many times within a year, because the current assessed land value would remain the same.

  A positive development is that the Cabinet is likely to approve amendments to the Equalization of Land Rights Act (平均地權條例) soon, which will allow it to reassess land value more often to reflect market changes. Under the revised law, the government can adjust the “current assessed land value” many times a year in case of short-term irregular fluctuations in land values. It can also reassess the “publicly announced land value” (公告地價) every year instead of every three years to flexibly adjust the land value tax (地價稅), while raising the tax burden for land and housing speculators.

  However, the amendments must still go through a legislative review, and since lawmakers have not put the amendments on their priority list for the current session, no one can be sure about their implementation. What people don’t want to see, however, are government pledges to ensure fair taxation ending up as nothing but empty promises once again.
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