From: ccchao@cco.caltech.edu (Chi-chao Chao)
Newsgroups: soc.culture.taiwan
Subject: Re: What is in Taiwan's land reform?
Date: 14 Oct 1992 05:37:01 GMT
Organization: California Institute of Technology, Pasadena
NNTP-Posting-Host: alumni.caltech.edu
Keywords: land reform

In article <1992Oct12.154644.13664@cbnewsh.cb.att.com> hhwu@cbnewsh.cb.att.com (eric.wu) writes:
>
>The newspaper I have (WJ) and the many discussions on SCT 
>didn't tell me much about the proposed land reform in Taiwan.  
>Here is what I want to know about the land reform and I hope
>the wisdom in this group can help me:
>
>What is the current practice in real estate transaction?  
>What is the reform proposed by Department of Finance?  
>What is the reform proposed by Department of Interior?  
>Why did the DOI proposals lose to the DOF proposals?  
>
>This is asking for a lot but I think other readers in this 
>network should know too.  The following example clarifies
>the areas I am interested.
>
>Ms. A bought a property some years ago for X and sold it 
>yesterday for 10X.  
>
>1. Does the property being land or a house have any impact
>   to the tax calculation?  How about the type of land or house?
>
>2. If Ms. A decides to pocket the profit, what is the "land tax"
>   rate Ms. A has to pay?  Is the rate tied to the size of the 
>   profit?  Will the after tax profit be added to her other 
>   income and taxed again through her personal income tax?
>
>3. If Ms. A decides to reinvest the 10X in another property and 
>   the property costs more than 10X, what is the tax calculation?
>   What if the reinvestment is less than 10X?  Will it being Ms. A's
>   only property or one of many properties have any impact to the
>   tax calculation?
>
>4. If Ms. A decides to reinvest the 10X in non-real estate,
>   what is the tax calculation on the 9X profit she made?
>
>5. If the property is the only such thing Ms. A has ever owned in 
>   her life time and she would like to retire on the profit, does
>   she pay the same tax as everyone else?
>
>6. If Ms. A happens to lose on another property transaction, will 
>   this loss be deducted from the profit for tax calculation?
>   What if the loss is from non-real estate investment?
>
>7. If Ms. A spent 4X to improve the value of her property, is the
>   4X deductible from the profit?  What kind of proof Ms. A has to
>   provide?
>
>8. Does the length of the time holding the property have any impact
>   to the tax rate?
>
>9. If it is not Ms. A but a corporate owning this property, will the
>   tax rate be different?
>
>10. How will land tax fraud be audited?  Randomly?  Any value greater
>    than Y?  Hand picked by??
>
>It should be obvious to some that these questions come from American 
>property taxes.  Some of them may not be valid for Taiwan and I could 
>have missed many.  Please feel free to modify the list.  I greatly 
>appreciate any information on this issue.
>
>Eric


First let me explain how the current system for land appreciation tax
works in Taiwan.  This tax only occurs when transaction is made.  So
no transaction, no tax.  It is calculated based on the "official assesed
value" (OAV).  In your example, the tax is calculated based on Y-Z, 
where Z was the OAV when Ms. A bought the property some years ago and Y 
is the OAV when she sells.  Y and Z have nothing to do with X and 10X.  
The OAV is determined by the local land price committee and they announce 
OAV once per year.  (In reality, the committee is manipulated by 
local fractions (Ti4 Fang1 Pai4 Hsi4).)  There are three tax rates: 
40%, 50%, and 60% (if my memory is correct), depending on the value of Y-Z.
There are some exceptions to the above rule.  For example, transactions 
of farm land are exempt from this tax and transactions of land for 
personal use (Tze4 Yung4 Chu4 Chai2) can get benefits (rate less than 10%,
I don't quite remember the exact rate.) (once per life time).

So answers to your questions under the current system:

1. Tax on land only.  See exceptions above.

2. Gains from stock market and real estate are not subject to personal
income tax.

3. The tax has nothing to do with if A reinvests or not.

4. Same.

5. See above for benefits for land for personal use.

6. The tax on each land transaction has nothing to do with others.

7. No.

8. In general, No.  But if buying and selling are made within a year, 
then Y=Z and the tax is zero.

9. No.

10. No need for fraud.  (You just control the land price committee.)

The main theme of the proposal by Ministry of Finance is to tax on the
real profit, in your example 9X, not Y-Z.  And exceptions are still kept.
Farm land is exempt from tax, and tax on land for personal use is still
calculated on OAV and can get benefits of low tax rate.  It is also proposed
to reduce the (40%, 50%, 60%) tax rates.  It is mentioned that fraud will 
be audited mainly for large transactions, and small portions for others
(randomly picked by computer). 

Originally, there was only one proposal, jointly supported by staffs of
Ministry of Finance and Ministry of Interior Affairs, which is the current 
MOF proposal.  Soon after that proposal was heavily criticized by some 
members in the KMT central standing committee in September, Minister Wu 
of MOIA suddenly changed his position.  (The press described that change 
as "over one night.")  That is the origin for MOIA's proposal.

The proposal by MOIA is basically to keep the current system and
with the exception that tax on real profit only for cases like the first 
transaction after classification of land being changed (e.g., change from
farm land to residential land) and several transactions of the same land
within three years.  It is also claimed that MOIA will try to increase
the OAV to the level such that it is close to the real transaction price.
No change of tax rates has been mentioned.  Neither has the auditing of fraud.
(How to collect taxes is the problem of MOF, not MOIA.  While MOIA should
be responsible for the land policy.)

Hope the above helps.

--
Chi-chao Chao
ccchao@alumni.caltech.edu
ccc@ee.nthu.edu.tw