Taiwan’s Ministry of Finance has been working on draft changes to property taxes in Taiwan, to combat what is generally considered a runaway real estate market. However, the finance ministry’s proposal has been called by KMT and DPP legislators alike as not going far enough.
The Ministry’s proposal fixes a central problem of the current tax regime, which taxes land and housing separately, using a reported price instead of actual market value. In effect, actual tax rates are lower than they could be for buying and selling property in Taiwan. The Ministry admits in an August 2014 press release that “low taxes on property transactions are believed to be a factor for runaway property prices and real estate over-speculation.”
However, the latest proposal offers a flat tax of 17% on profit from property sales, as opposed to a progressive tax of up to 45% in earlier versions. The current luxury tax on property sale within two years will also be abolished.
Housing advocates and legislators criticized the proposal, saying that the proposal will not do enough to curb property speculation. KMT legislator Tseng Chu-wei (曾巨威) said that the luxury tax should be kept to discourage speculators from buying property for short-term gains.
Finance minister Chang Sheng-ho (張盛和) responded by saying that the proposal is merely a baseline, and the parliament should add to it as they see fit to the society’s expectations. He also said that compared to the current actual tax rate of 4%, 17% is already a four-time increase. “Too big of a change will kill the chances of the bill passing,” Chang said.
Housing prices in Taiwan, especially in large metropolitan areas, have risen much faster than real wages in the last decade. Real estate speculation, both by domestic buyers as well as from abroad, have caused a housing boom, with large residential developments sprawling around major cities like Taipei and Taichung.
According to a survey conducted by Taiwan-based Business Today magazine last April, close to 70% of the 21-35 year-olds surveyed said they are concerned about high property prices driven up by Chinese buyers. As early as October 2013, 78% surveyed by the same magazine support higher property and transaction taxes to put downward pressure on prices.
Moreover, the frustration of unaffordable housing weighs most heavily on the younger generation, many of whom have given up the idea of owning a home in the cities. This frustration adds to the image that the current administration favors wealthy, corporate interests.
Therefore, housing reform enjoys some degree of bipartisan support. Should the new rules pass the legislative process, the Ministry of Finance says it would like to push for the new rules to take effect in 2016.