The Ministry of Finance on Friday confirmed the content of a draft special sales tax (popularly known as the luxury tax) bill, which would slap a levy on sales of certain expensive goods and services, as well as on short-term property ownership.
Among the most contentious issues being discussed is a clause that would impose a 15 percent tax on the sale of non-self-use houses, vacant plots of land and commercial buildings within one year of purchase, and a 10 percent tax on those re-sold within two years of purchase.
Although many still doubt such a luxury tax would do much to make the tax system fairer or help foster the healthy development of the local property market, if the levy takes effect in the second half of the year, as planned, it would represent the first tax increase the country has seen in years.
Now, with the ministry set to send the draft bill to the Cabinet for review this week and to the legislature for approval by the end of the month, national attention is shifting from the ministerial-level discussions to the various interactions of Cabinet, lawmakers and interest groups concerning the draft.
Given the intense opposition of the real-estate and luxury car industries to the luxury tax legislation, the government’s credibility is certain to be put to the test as the public wonders to what extent the final bill will be shaped by special interests.
To pre-empt opposition from lawmakers, the Ministry of Finance on Friday added several exclusionary clauses to the draft bill, ensuring it would target no one but short-term property speculators and the wealthy.
However, several questions remain about the ministry’s use of the luxury tax to address public discontent over high housing prices and the widening wealth gap.
For one thing, the government claimed that imposing the tax would help discourage speculative investment in the property market and prevent a real-estate bubble. However, the reason property prices are high in Taiwan, especially in Greater Taipei, is the nation’s relatively low land-value tax and real-estate tax, cheap borrowing costs and ample market liquidity. In other words, if the government really wants to do something about high prices, it needs to look at the bigger picture.
A second problem is the lingering suspicion that the government is trying to push through a populist policy to win votes, given that polls consistently show that the Ma administration’s tax policies are widely believed to favor the rich and businesses.
If the government really believed in making the tax system fairer, a better way would be to impose a capital gains tax instead of a special sales tax. The lack of quality jobs and stagnant wages also contribute to a situation in which the rich get richer and the poor get poorer.
The government needs to be aware that it faces a far bigger challenge, one that requires it to not only ensure a more equitable distribution of wealth, but also a more attractive environment for businesses and thereby encourage job creation and higher wages.
The luxury tax legislation is just the first step for the Ma administration on the road to fulfilling its many promises.
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