Members of the finance panel of the Economic Development Advisory Conference (經發會) passed a proposal to temporarily cut the land transaction tax for two years and suspend the securities transaction tax for one year at their sixth meeting Wednesday night.
There was a clear line separating business leaders who supported the tax-cut proposals, and government officials and academics who strongly opposed any tax cuts without first identifying new sources of tax revenue.
Currently the tax rate for land transactions is between 40 percent and 60 percent, depending on the amount of capital gain. The panel's proposal is to cut the rate to between 20 and 30 percent for the next two years.
While the measures were passed by a majority of votes, it remains to be seen what the actual economic conference -- scheduled to be held Aug. 24 to 26 -- will do with the suggestions and whether Chen Shui-bian's (陳水扁) administration would approve the ideas.
Lin Chuan (林全), Director General of Budget, Accounting and Statistics, strongly opposed a temporary tax cut at Wednesday night's meeting.
"The tax on land transactions should not be cut in half temporarily. If we want to cut the tax rate, we should cut it permanently. Otherwise, what we get is some real- state transactions that only take advantage of the low tax rate. It won't help the fiscal situation and is unlikely to stimulate the economy," Lin said.
However, industry leaders stressed that the purpose of the tax cut is to provide short-term incentives to revive the sluggish real-estate market.
According to the Ministry of Finance, total tax revenue from the land transaction tax last year was NT$79.5 billion. In the first half this year, tax revenue has decreased to NT$25.4 billion, about 37 percent lower than the same period last year.
Pundits were mixed on the tax-cut idea.
"There has been no theoretical support that cutting the tax rate on land transactions could definitely stimulate the recovery of the real-estate market. If there is no positive effect from the tax cut, what we will get is the loss of tax revenue for nothing," said Tseng Chu-wei (
"To cut the tax rate in half should have the effect of decreasing costs on the supply side. But the current problem in the real estate market is not enough on the demand side. Were there no recovery in the economy, it's unlikely the demand for real estate would be increased [after the tax cut], and therefore the effect would be minimal," said Sun Keh-nan (孫克難), a research fellow at the Chunghua Institute for Economic Research.
"The real estate market has been very sluggish. The administration should take into consideration that [collecting] future tax revenue in advance is better than nothing," said Christina Liu (
Panel members spent more than two-and-half hours debating the tax-cut issues until late Wednesday night.
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