From: u322543@twncu865.ncu.edu.tw
Subject: The Land Tax Debate
Organization: Computer Center, NCU, Taiwan, R.O.C.
Date: Mon, 14 Sep 1992 16:29:23 GMT

A copy from "The China Post Editorials", Sep.12 '92
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                        The Land Tax Debate
 The proposal by the Finance Ministry to change the claculation base for the
land value increment tax to the actual trading prices from the existing gov-
ernment-assessed market prices has triggered heated debate in the local media
recently.
 Generally, members of the public all support the proposal in that, if succe-
ssfully implemented, it will enable the state to gain profits resulting from
land value appreciation, a key land reform measure long pursued by the govern-
ment.
 Also, according to Finance Minister Wang Chien-shien and his supporters, the
proposed tax collection method can help check Taiwan's long-standing and wide-
spread land speculation by correcting the faults existenct in the current sys-
tem of levying land value increment taxes based on government-asessed prices.
 One of the faults in the present system is that the growth rate of the govern-
ment-assessed prices always lags far behind that of the prevailing market le-
vels. As a result, government assessed prices are usually only about one third
of the prevailing prices.
 In other words, about two thirds of the increase in land value is not subject
to taxation when landlords declare tax returns on property sales, using govern-
ment-assessed prices as the base.
 Another major fault in the present system is that prices are assessed only
once a year. Many land speculators use this loophole to engage in multiple
transactions within a year, without having to pay any land value increment
taxes.
 These serious shortcomings in the land tax system are what prompted Finance
Minister Wang to seek reform by changing the land value increment taxation
base from government-assessed prices to actual trading prices, which he
believes can best prevent tax evasion and ensure fairness.
                        Opposing Views
 But opponents, including Minister Wu Poh-hsiung of the Interior, who is in
charge of land policies, question the feasibility of the Finance Ministry's
proposal to collect the land value increment tax based on the actual trans-
action prices.
 One primary problem, they say, is that it will be difficult to obtain infor-
mation on the actual trading prices, because many land owners tend to use
various methods to understate their selling prices in order to reduce their
tax burden. Wu said the difficulty in obtaining the real trading prices is not
imaginary, and that he speaks from experience.
 He noted that the system of collecting land value increment taxes based on
actual trading trading prices, as now advocated by Finance Minister Wang, had
actually been in force for a long time in Taiwan's early years of economic
development. But the government finally had to abandon that system and switch
to the current collection method some 16 years ago, because most land owners
seriously understated their selling prices.
 Now the Finance Ministry wants to return to the old system, it must first try
to overcome the problem of land sellers understating the real price. The mini-
stry has said that it can overcome this problem by improving tax collection
techniques.
 Even if it can, the Ministry of Finance may not be able to surmount strong
opposition from landlords, real estate developers and other industrial com-
panies who own undeveloped lands and do not wish to see a change in the law.
They cite various reasons for their opposition to levying land value incre-
ment taxes according to actual trading prices.
 Landlords say that they cannot imagine having the bulk of the capital gains
realized in the sale of land that they inherited from their ancestors taxed
by the government.
 Many corporate executives say it is unfair to them, if the government now
decides to use actual transaction prices to levy land value increment taxes.
 These people argue that they are bona fide businessmen, not land speculators.
They now want to sell land to generate profits to make up for the losses in-
curred in the stock market investment or in export business in the last few
years.
 The reasons raised bt these people, with interests threatened by the reform,
may not be totally valid. But their opposition cannot be taken lightly, as they
are very influential, especially in an important election season such as the
coming one.
 Any tax system must be enforceable. Otherwise, it will prompt more people to
cheat and add further to unfair taxation, which inturn will have negative
effects on social morality.
 Interior Minister Wu Poh-hsiung, in objecting to the Finance Ministry's pro-
porsal as being too difficult to enforce, calls instead for the government to
maintain the existing method of collecting the land value appreciation taxes,
but to accompany it with reform.
 Specifically, Wu suggests that the government raise land prices by larger
allotments in its future assessments of land value so that it can quickly
catch up with going market rates. Such a reform should correct the above-
mentioned major faults in the current land value increment tax system.
 This approach to reform is relatively moderate, and thus opposition to it
should be less vigorous. Still, steps must be taken to prevent land interest
groups from interfering in the government attempts to adjust land prices at a
faster pace.
 In debating the question of how to levy land value increment taxes, government
authorities must not lose sight of the fact that tax reform alone won't be able
to solve the land supply problems in Taiwan.
 Reform must also be made to increase land supply, making more land available
for the construction of houses and factories. The persistent shortage of land
for such purposes is a primary reason for rampant speculation in residential
and industrial properties and their meteoric price rises in recent years.

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