Republic of China - Taiwan

American Journal of Economics and Sociology, The,  Dec, 2000  by Alven H.S. Lam

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ALVEN H.S. LAM [*]

THE HISTORY OF real property taxes in China can be traced back to four thousand years ago when farmers contributed one-eighth of their crop to the government. The practice at that time was to subdivide a square piece of land into nine plots of equal size, with two plots on each side of the square, and one in the middle. Then eight families were assigned the rights to cultivate the eight outside plots. Each of these eight families had an obligation to cultivate the centrally located ninth plot. Since all the plots were equal in size, the products from the ninth plot were the eight farmers' annual contribution, or taxes, to the government. Each family's contribution, or tax rate in modern terms, was about ten percent of its production income.

The modern Chinese property tax system was designed by Dr. Sun Yat-sen, the Republic's founding father. Dr. Sun's ideology was called the Three Principles of the People. His land and taxation philosophy was heavily influenced by the turn-of-the-century American economist, Henry George. In 1912, Dr. Sun responded to a question from a group of American reporters by saying: "The teaching of your single taxer, Henry George, will be the basis or our program of reform. The land tax as the only means of supporting the government is an infinitely just, reasonable, and equitably distributed tax..." [1] The emphasis of Dr. Sun's philosophy on property taxation was later stipulated in China's Constitution.

For thirty years after the Republic of China was proclaimed in 1912, the country was under constant hostilities among warlords and from Japanese invasion. As warlords ruled the country in the name of the Republic but in defiance of its Constitution, Chinese people and government systems were exploited without mercy. After Dr. Sun's death in 1925, his political successor, Chiang Kaishek, was so preoccupied with trying to control the warlords, resist Japanese conquest, and stave off Communist revolution under Mao Tse-tung that he had little opportunity to implement large-scale land reform on the mainland.

The enforcement of Dr. Sun's land policies, had it been possible, could well have thwarted the eventual Maoist takeover by correcting the popular grievances that fueled it. Chiang's force withdrew from Mainland China to Taiwan in 1949, and the Statute for the Equalization of Urban Land Rights was enacted in 1954 to reaffirm Dr. Sun's land taxation ideology. The Statute was intended to achieve four objectives: (1) fair assessment of land value; (2) taxation according to declared value; (3) government optional purchase at declared value; and (4) public enjoyment of future land value increment. These objectives became the guidelines of all property taxation laws in later years.

In 1977, the Land Tax Law was passed to provide stronger regulatory and enforcement power for land-related taxes. Two major land-related taxes were defined in the laws: land-value tax and land-value increment tax. The land-value tax was developed to expand the local government revenue base. The land-value increment tax was designed to ensure the public enjoyment of future land value increment. In other words, land-value increment tax's objectives are to assure the equal distribution of future benefits from land and to control land speculation. For the effectiveness of implementing the laws, both land-value tax and land-value increment tax are carried out within local jurisdictions.

The land- and building-related taxes in Taiwan include land-value tax, agricultural land tax, land-value increment tax, deed tax, house tax, and estate and gift tax. Agricultural land tax was suspended in 1986. Estate and gift tax is a central government tax. Deed tax accounted for 8.5 percent of prefectural and municipal revenues in 1995 and was relatively less significant in the revenue system in Taiwan. The primary focus of this chapter will be on land-value tax, land-value increment tax, and house tax. These three kinds of taxes in Taiwan are commonly called property taxes in other countries around the world.

I

The Current Revenue Structure in Taiwan

IN FISCAL YEAR 1995, national taxes accounted for 53.8 percent of total national revenues, while provincial and city taxes accounted for 20.4 percent; and prefectural and municipal taxes accounted for 20.9 percent. [2] In the same fiscal year, 75.3 percent of total prefectural and municipal tax revenues came from land taxes in which the land-value tax accounted for 14.9 percent and the land-value increment tax accounted for 60.4 percent (see Table 1). The statistics show the importance of land taxes, especially the land-value increment tax, in a local government's revenue base. Between 1985 and 1990, annual total revenue growth was 18 percent; whereas the land-value increment tax increased 28.6 percent annually. Although the annual growth rates for all taxes became stable between 1990 and 1995, the total amount of land-value increment tax continued to climb from NT$82.9 billion in 1990 to NT$155.3 billion in 1995. The peak of land-value increment tax collection was in 1992 when the land-value increment tax ac counted for 71 percent of total local revenues.