TAIWAN - Premier Wu Den-yih yesterday confirmed that a 10 to 15 perc ent luxury tax will be introduced to curb speculative real estate transactions as early as the second half of 2011, if legislators support the move.
Wu was speaking in the wake of media reports that President Ma Ying-jeou on Thursday already approved a luxury tax proposal designed by the Ministry of Finance (MOF) to narrow the gap between the rich and the poor.
The premier said the government has studied the possibility of a luxury tax for a long time, but its introduction will call for revisions to the tax law, which needs to clear the Legislative Yuan.
The Cabinet is still collecting opinions about certain details before finalizing a draft that will be forwarded to the Legislative Yuan, Wu said.
"While the policy has been decided, details still have to be fleshed out and legal procedures have to be completed before the new tax can be imposed," Wu was cited by the Central News Agency as saying ahead of a legislative meeting.
The premier said he hopes lawmakers can complete the third reading in the first half of the year, so that the luxury tax can be implemented in the second half of 2011.
MOF officials said earlier in the day that the target of the anti-speculation measure will be residential properties that are not used by their owners but resold soon after being purchased.
Such property owners would have to pay a 15 per cent transaction tax on the actual sale price of units that are sold within a year of purchase, according to the MOF proposal.
The rate would fall to 10 per cent if such properties are sold in the second year after purchase, and no luxury tax would be imposed on properties that are held for more than two years.
The move, which reportedly received the president's blessings during a briefing by Finance Minister Lee Shu-der on the plan on Thursday evening, would also seek to impose a 10 per cent tax on the purchase of luxury items, such as private jets and yachts.
Other taxable luxury purchases would include luxury cars, protected animals and their products, and memberships in golf and business clubs.
The CNA cited an MOF estimate as indicating that the new tax would boost government revenues by about NT$15 billion (S$0.64 billion) each year, with more than NT$10 billion expected to come from property transactions.
Asked if the luxury tax would work to curb real estate speculation, Wu said no measures can "definitely" be successful.
"But general speaking, this should be pretty effective," Wu said.
Wu's confirmation of the luxury tax proposal dealt a blow to construction stocks in the local bourse. Construction stocks fell 3.8 per cent.
The idea of introducing a luxury tax was first made public last year amid calls for the government to curb soaring real estates prices and narrow the widening gap between rich and poor.
But the introduction of a luxury tax is making business sectors worry about its damage to the economy.
The General Chamber of Commerce (GCC) of the R.O.C., said the measure will definitely dampen the housing market, as it will deter people from buying real estate.
"It will achieve the effect of curbing housing prices, but that means the winter will come for the real estate sector," the GCC said.
The GCC said it supports the government's move to narrow the gap between the rich and the poor, but it has already received many complaints from its members about the possible damage.
It said members from the car industry have expressed their worries that the car market, which has just come out of its doldrums, would face a chill again because of the luxury tax.
The GCC said it hopes the government can work out measures that can cushion businesses from the luxury tax's impact.
While the Cabinet's Council for Economic Planning and Development (CEPD) is trying to boost domestic demand to drive the local economy, the MOF is proposing the luxury tax to curb consumer spending, the GCC said.
"How can Taiwan's economy recover?" asked the group.
The Chinese National Federation of Industries (CNFI) said it supports the idea of having the rich pay more taxes in order to narrow their gap with the poor.
But CNFI Secretary General Tsai Lien-sheng questioned the efficacy of the measures that are being proposed.
Speculators could simply keep their properties for more than two years to avoid the luxury tax, Tsai said.
He also questioned the rationality of imposing a luxury tax on purchases of golf club memberships.
Golf is no longer a "luxury" sport, and the government should step up its efforts promoting golf now that Taiwan has produced a top golfer in Yani Tzeng, Tsai said.
Real estate agencies also expect the luxury tax to deter speculation, with some predicting a drop of 10 to 20 percent in transactions.