Republic of China - Taiwan

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

C. House Tax

The house tax can be traced back to China's T'ang Dynasty (A.D. 618-907). Current house tax is levied according to the value of the house (House Tax Act, 1967), assessed by a local real estate assessment committee. The values must be publicly announced by the committee.

House tax rates vary depending upon the purposes of use. For residential use, the tax rate should be higher than 1.38 percent and lower than 2.0 percent of the current value. The rate for owner-occupied houses should not exceed 1.38 percent. For commercial use, the rate is from 3.0 to 5.0 percent. For non-profit use such as hospital or civic organizations, the rate is 1.5 to 2.5 percent. Local government is responsible for setting the house tax rates. Once the local Peoples' Assembly has approved the rates, they are submitted to the provincial government. After approval from the Provincial Assembly, the tax rates are sent to the Ministry of Finance for the record.

III

Evaluation of the Current Property Tax System

THE MOST UNIQUE characteristic of the Republic of China's property tax system is its constitutionality. The implementation of the equalization of land rights is stipulated in the Constitution. The main objective of the equalization of land rights is to redistribute profits from land through the measures of land-value assessment, declared land-value, land-value taxation, and land-value increment taxation. Hence property taxation becomes a local government function with its objectives stipulated by the national Constitution. The administrative structure to implement such a unique taxation program has evolved into a very complicated and inefficient bureaucracy in Taiwan.

Although property taxes generate revenues for local governments, local tax officials have never implemented a taxation policy as a revenue-generation tool. The bureaucracy through which central government controls local revenues and expenditures gives little incentive for local officials to seriously monitor the effectiveness of the property taxation system. Land-related taxation was designed and implemented with regulatory, political, and social objectives. Although property tax revenues continue to grow and are often seen as a healthy revenue source, the reality is that a significant portion of gains from land sales escape through regulatory loopholes. For example, land transactions within the annual assessment period are not subject to land-value increment tax even if sales value has increased significantly within the year.

The land-value increment tax has unique objectives as mentioned earlier: to capture the gains from land sales, to distribute the benefits to the public, and to control speculation. The objectives have been difficult to fulfill due to the complexity of regulatory, political, and social conflicts.

A. Capturing Gains from Land Transactions

Taiwanese assessment practice was never able to reflect the real market values of land, and consequently never able to measure the real gains from transactions. The publicly declared land values are approximately 50 percent of market values. If the local government does not reassess land value, then the ODPV will not be changed. In this case, no land-value increment taxation is collected. Even though the government reassesses land values every year, a seller can still escape paying land-value increment tax by buying and selling land before the new ODPV is announced. For example, if the ODPV is announced on July 1 every year, someone can buy a piece of land on July 2 and then sell the land on June 30 of the next year. The person makes a huge profit, but does not need to pay land-value increment taxation because the ODPV has not changed. As a result of such practices, when the real estate market skyrocketed in the early 1990s, significant land-value increment taxation revenues were never captured.