The government’s latest measure to allow local governments to reinstate a tax on idle land that was announced last week is an alternative way to deal with rampant property speculation, following previous measures on housing loans, stricter rules on mortgages and the ban on sales of state-owned properties, but will the idle land tax help curb land hoarding and hence bring down housing prices?
Probably not.
Other options such as imposing a capital gains tax on the sale of real estate within a year of its purchase or raising insurance companies’ risk-based capital ratio may be better ways to help discourage speculative investment.
Even the Ministry of Finance did not want to place unrealistic hope on the idle land tax measure. Speaking to reporters on Monday, Minister of Finance Lee Sush-der (李述德) said the measure might “more or less” help rein in rising property prices. He said the tax was only one of many measures the government could use to help cool the property market — other measures, such as financial and monetary policy, as well as land supply and welfare policies that are under the jurisdiction of other government agencies are also crucial in tackling the issue, he added.
Many property experts have also downplayed the significance of reinstating the idle land tax, which was suspended in 1985. They say it will not have a significant impact on financially strong property developers and owners, because the tax — two to five times the land value tax — is tiny when compared with the surge in property prices.
So, the main problem is that the tax poses little concern to developers because it represents such a small amount. The land value tax is calculated based on the so-called “publicly announced land value” that is calculated by local governments, with the rate ranging from 0.55 percent to 1 percent. As the publicly announced land value is so far below the actual market value of land, the levy on idle land, even if it is two to five times that of the land value tax, does not appear to be a very heavy financial burden on property speculators.
It is not enough for the government to just reinstate the idle land tax, other measures are needed, such as publicly disclosing land transaction prices and using actual market prices as the basis when levying the land value tax and calculating the idle land tax.
There is also another problem associated with the idle land tax — how land is defined as vacant or underused.
The government defines plots of land as vacant if construction projects have not started within two years in special municipalities and three years in other areas, while viewing land with buildings worth half the land’s value or lower as underused, but what about vacant plots that have been turned into temporary parking lots, plazas, green spaces or small parks for public use before construction work begins?
Many developers and landowners use these measures not only to accumulate land, but also to cut their tax bill under the Regulations Governing the Reduction or Exemption of Land Tax (土地稅減免規則).
The government must amend the regulations to stop property developers abusing the preferential tax treatment system and prevent the hoarding of plots of land.
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