Gov’t urged to reveal details on ‘luxury tax’ plan

The China Post news staff

The China Post news staff — Local real estate developers yesterday urged the government to work out clear-cut details concerning the implementation of the “Statute for Special Commodity and Service Tax” as soon as possible to reduce the “wait-and-see” sentiment among house buyers. Under the statute proposed by the Ministry of Finance, the government will impose the so-called “luxury tax” on high-priced goods and services, which is designed to target short-term property speculators.

Accordingly, those who sell residential units not actually used personally or properties with less than one year of ownership will be subject to a special tax of 15 percent. The tax will be set at 10 percent on sale of similar housing units and land lots with less than two years of ownership, according to the new tax scheme.

Although the new tax may take effect on July 1 at the earliest, it has already manifested a major impact on the local realty market. For instance, Chen Wu-tsong, chairman of the Real Estate Development Association of Kaohsiung, said some members of his association said that they received only one house buyer within three days of the new tax scheme being announced, as most clients are taking a wait-and-see attitude in the hopes that housing prices will drop significantly.

Chen said that in Kaohsiung, it usually takes two to three years for real estate developers and construction firms to settle sales of their new housing units in the southern city, which are built and then sold, instead of being sold before construction as seen in the greater Taipei area. Accordingly, if house buyers hesitate to grant patronage, then realty developers and construction firms will see their capital funds tied up in unsold housing units, which, in turn, may cause banks to tighten lending to the construction sector, eventually causing the realty market to collapse, according to Chen. Chen continued that he supports the government’s policy of imposing a luxury tax on short-term property speculators, but stressed that the tax should be imposed flexibly, rather than applicable islandwide.

The realty market in Kaohsiung is quite healthy, as the southern city is filled with housing units bearing an average price of only NT$150,000 per unit, and witnesses few luxurious residential units like those seen in Taipei.

“The economic structure and housing price in Kaoshiung are different from those in Taipei, and therefore the new tax scheme is not suitable for implementation in Kaohsiung.

Chen suggested that the luxury tax should be imposed based on the “earnings” scored by investors, instead of on “housing prices.”