Controversy rages over land gains tax

The China Post staff

The curtain has already fallen on the plenary meeting of the Economic Development Advisory Council (EDAC), but the controversy over the land value increment tax reduction proposal continued to rage in society yesterday. While the main opposition Kuomintang (KMT) legislative caucus said it basically supports the tax reduction proposal, its ruling Democratic Progressive Party (DPP) counterpart remained divided over the issue. Meanwhile, the two other opposition parties — the People First Party (PFP) and the New Party (NP) — generally opposed any unconditional tax slash plan. The proposal to halve the land value increment tax for two years, strongly advocated by major trade and industry associations, didn’t receive unanimous support at the just-concluded 120-member EDAC plenary meeting. But the proposal is still likely to be brought up for deliberation and approval in the Legislative Yuan. KMT deputy parliamentary whip Tsai Chia-fu said the KMT, which controls a majority in the current legislature, basically backs the 50 percent cut in the land value increment tax in order to help boost the local property market and thus fuel a domestic economic recovery. Nevertheless, Tsai said, the KMT legislative caucus insists that trading in self-use households be subject to the same tax cut proposal to uphold taxation fairness. DPP legislative caucus secretary-general Tsai Huang-lan said at an early morning press conference that the ruling party is willing to back the proposed two-year land value increment tax reduction. “We hope that the Ministry of Finance can present a comprehensive tax adjustment plan and necessary complementary measures to the legislature as soon as possible for cross-party consultation,” Tsai said. Later in the day, several influential lawmakers from the DPP’s largest intraparty faction New Wave, including Hung Chi-chang, Lin Cho-shui and Chiu Tai-san, called a news conference to air their opposition to the proposal. The trio said the proposed land value increment tax cut violates the principles of justice and fairness. They said the government should take advantage of the lingering economic slowdown to push for sweeping economic and financial reforms to lay a solid foundation for future economic growth instead of pursuing short-lived or short-term results. Hung said the ratio of tax revenues to Taiwan’s gross national product (GNP) has been declining steadily in recent years, from 18.6 percent in 1992 to an estimated 13.3 percent in 2001. In contrast, the ratio of government debts to GNP has zoomed from 5.68 percent to 26.57 percent. “All these figures point to unreasonableness of our existing taxation system. We need an across-the-board overhaul of our tax structure, not just a temporary measure for short-term benefits for a specific group of persons or land speculators,” Hung stressed. Moreover, Hung said the proposed tax cut may not necessarily help revive the slumping domestic economy and may only fuel speculative land trade deals. Hung said he and his New Wave colleagues would block the passage of the tax cut proposal unless the Finance Ministry comes up with a well-designed tax adjustment plan with new taxation sources to make up for decreased land value increment tax revenues. PFP Legislator Chou Hsi-wei said he personally does not think that a land value increment tax cut would truly help stimulate domestic economic growth. Chou said the PFP prefers to see the government lower the composite income tax rates by one-third for two years while keeping the land value increment tax intact to avoid impairing taxation fairness. “We believe that an income tax cut is the best measure to take at this time of economic hardship as the move would benefit all taxpayers, not just large business groups or land developers,” Chou said. NP Legislator Lai Shyh-pao said Taiwan needs an overall tax reform and that his party would not support any tax reduction proposal that does not offer any supplementary measures to secure new taxation sources for the national coffers. In response to opinions expressed by lawmakers of different political stripes, Finance Minister Yen Ching-chang said his ministry will unveil a plan for halving the land value increment tax together with feasible supplementary measures in two weeks. Yen, however, declined to divulge any details about the plan. Vice Finance Minister Wang Teh-shan said if the land value increment tax is really halved, the government may have to adjust business tax rates to make up for the losses. Wang said it is a general world trend to focus on levies of income taxes and business taxes. As the land value increment tax is basically a capital gains tax, Wang said, it has become increasingly difficult to collect as people can easily find legal loopholes to avoid such taxes.