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A Study of Integrated Housing and Land Income Tax in Taiwan and the Discussion of Relation to Land Value Increment Tax
Integrated Housing and Land,Income Tax,Land Value Increment Tax,Taxation on Property Transactions Based on Actual Selling Prices,Tax Collection Procedure in Integrated Housing and Land Income Tax,
|Publication Year :||2019|
The 'Integrated Housing and Land Income Tax' was implemented on January 1, 2016, in response to expert’ and mass’ attention to this issue.
In comparison with the pre-revision regulations, the income within 'the total amount of land value increment' is still taxed by 'Land Value Increment Tax,' but the income over 'the total amount of land value increment' is taxed by 'Integrated Housing and Land Income Tax.' Thus, 'Land Value Increment Tax' and 'Integrated Housing and Land Income Tax' are jointly implemented.
This amendment solves some existing problems. Before 'Integrated Housing and Land Income Tax' was implemented, 'Land Value Increment Tax' had only taxed land’s income within 'the total amount of land value increment.' And the income derive from the house are subject to 'income from property transactions' in the 'Income Tax Act.' However, we generally transact house and land in one price; as such, it seems impractical to separate income of house and land. Thus, tax collection authorities simply taxed income from house based on 'tax estimation' instead of real market prices.
To solve the above problem, there are some reforms in 'Integrated Housing and Land Income Tax.' First, both house and land income can be taxed by 'Integrated Housing and Land Income Tax.' Second, the tax-base is dependent on real transaction prices rather than 'tax estimation,' thus it is more consistent with the principle of actual economic relationships and interests.
Even though there are some important amendments in the 'Integrated Housing and Land Income Tax' as mentioned above, it remains controversial in other aspects. First, maintaining 'Land Value Increment Tax' means retaining the existing problems. Next, due to the distinct procedures of these two regulations -dividing one transaction into house and land parts and applying different tax categories- tax rate and tax payable may lead to discrimination against Taxpayer’s constitutionally-protected equal rights.
Hence, the underwrite suggests that income derived from real estate should be one tax category: 'Real Estate Income Tax.' Before applying 'Real Estate Income Tax,' several important issues need to be discussed.
First, maintaining 'Land Value Increment Tax' is unnecessary. Article 143 in the Constitution of the Republic of China (Taiwan) is part of 'fundamental national policies' and 'program clauses,' legislators have flexibility to enact regulation on land policy. Second, the concept of the Civil Code should not always take precedence over the Tax Act, because the Tax Act has its own legislative purpose, such as the 'Ability-to-Pay Principle.' Besides, considering the ability of taxpayers, the tax should stick to market price. Because house and land are necessities for the masses, which is different from other properties.
Therefore, current 'Integrated Housing and Land Income Tax' provides a valuable framework. That is why the Chapter 4 'Integrated Housing and Land Income Tax：Constituent Elements' on this article focus on its substantial regulation. The underwrite suggests retaining the individual and the profit-seeking enterprise as 'taxpayers,' but for taxpaying objects, new regulation should not be applied to pre-acquired real estate.
Next, on the part of taxable base, in accordance with net principle, 'House Tax' and 'Land Value Tax' should be deducted from Income Tax. Besides, for one who acquires real estate because of gift or inheritance, it is usually without obtained cost. So, the current regulation might 'overestimate income.' The underwrite suggests when the donee or heir sell the house and land, we should take the original cost (the decedent or donor voluntarily acquire that real estate) as deduction of income tax to avoid the above problems. This way, Estate Tax and Gift Tax should be as cost deduction in 'Real Estate Income Tax' as well. In addition, the standard to calculate 'term of owning real estate' influences the amount of tax payable. So it should be regulated by law or at least authorized by law, not just by the tax collection authority’s direction.
As for tax rate, firstly, for 'an individual who sells house and land where the house is built in partnership with a business entity,' its tax rate is lower than general ownership who sells house and land within 2 years. The purpose of taxing higher tax rate for short-term holding is to deter opportunistic behavior. However, 'the house is built in partnership' criterion does not effectively rule out the possibility of opportunistic behavior. So, the Article about 'the house is built in partnership' should not categorically apply lower tax rate in short-term holding. Next, 'self-use house and land held by an individual, his (her) spouse, or their minor children' can apply some tax preference. This is because self-use house and land are strongly connected with 'right to life' and 'freedom of migration.' Nevertheless, the preference should be limited by the quota of tax-deducted or by the area of house and land.
In regards to 'term of holding real estate,' applying different tax rate is able to avoid 'bunching' and the 'locked-in' effect. So, People who hold house and land for a long time can apply lower rate. On the other hand, people who hold house and land for a short term should apply higher rate to avoid opportunistic behavior. Since the tax brackets between different holding terms is too large, the underwrite suggests to shortening the tax brackets; this not only simplifies the tax system, but also reduces the incentive for tax avoidance.
In addition, income from selling agricultural lands and constructing farmhouse should apply subsidy instead of tax preference. Next, when it comes to 'land reserved for public facilities,' the tax preference should only apply for the first transfer. This is because landowners who obtained land reserved for public facilities after the first transfer has already bought in at the lower price. That is, the loss of market price was already reflected in land price. It is unnecessary to give more tax preference after the first transfer.
Finally, Chapter 5 proposes 'Present Situation and Suggestion of Tax Collection Procedure' and discusses 'Litigants’ Obligation to Assist' in the first place. Taking 'Land Value Increment Tax' as a reference, the underwrite suggests that both taxpayer and buyer should declare the tax after the real estate transaction. For the purpose of avoiding taxpayers intentionally delaying payment, buyers should have the right to be 'designating taxpayers.' Otherwise, sellers cannot transfer ownership of house and land to buyers. In addition, the obligation of administrative authority investigation is also important. When taxpayer refuse to declare, and it’s hard for authority to find the data, tax collection authorities should investigate not only litigants but also third-party assistants. The common three party mechanisms in Real Estate Income Tax includes financial institutions, construction companies, and obligations of 'Actual Transaction Price Policy'.
|Appears in Collections:||科際整合法律學研究所|
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