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Think tank suggests dramatic tax reform

TAIPEI, Taiwan -- In order to achieve just taxation, housing and land values should not be factored in separately when taxing capital gains in real estate transactions, according to a report released by the Academia Sinica yesterday.

The Academia Sinica invited professionals from a broad range of industries to carry out a yearlong study that aimed to review the country's taxation system and to remark on any faults or irregularities that were not in line with standards in other countries. The report was published yesterday.

According to the report, a number of problems exist in Taiwan's real estate market, including an exceedingly high discrepancy between home prices and average income, a skewed relationship between supply and demand, low costs for holding properties, unusually high capital gains from property transactions and relatively low tax submissions.

Academia Sinica said the government should combine housing value and land value for tax calculation, and take real earnings into account when calculating capital gains tax in the short term.

Other Changes in Real Estate Taxes

It also suggests that the government re-assess current housing and land values to more accurately reflect market prices. The government should lower the tax rate levied on personal properties and increase the tax rate on property used for other purposes like investments.

The Ministry of Finance said it will consider the proposal to combine the housing and land value when calculating tax, adding that an amendment to the regulation will be submitted to the Legislature's first session to be held next year at the earliest.

In an effort to increase the cost for real estate investors, the report also suggests levying tax on vacant land, so that more of these properties may be released onto the market for those in need.

In addition, Academia Sinica suggests following Hong Kong and Singapore's example and levying an additional transaction tax on foreigners who purchase real estate in an effort to prevent speculation through foreign capital.

Taiwan's Low Tax Collection

According to the Annual Demographic International Housing Affordability Survey released in January 2014, Hong Kong's housing prices are on average 14.9 times higher than the national average income. This disproportion ranks the highest in the world. However, according to the government's Construction and Planning Agency, Taipei's ratiostands at 15, even higher than Hong Kong's.

Academia Sinica listed three major problems in Taiwan's taxation system: the lowest tax revenue as a percentage of GDP in the world, low business taxes but high income tax and heavy government debt.

Taiwan's tax revenue as a percentage of GDP has been less than 13 percent since 2009, much lower than the OECD's average of 33.8 percent. This works against Taiwan's financial stability, Academia Sinica cautioned.

The report said that the government has granted too many tax deductions over the years, lowering tax income. The Academia Sinica suggests that the government increase Profit-seeking Enterprise Income Tax from 20 to 25 percent.

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Academia Sinica scholar Wang Ping (王平) speaks during a presentation, yesterday. The Academia Sinica yesterday published a report recommending improvements to Taiwan's taxation system. Most of the report focuses on Taiwan's real estate tax system. (CNA)

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