A fiasco of a tax cutThe latest government steps to help stimulate the real estate market remain controversial, with many arguing that they will do more harm than good. Transactions quickly receded after the government announced a plan to cut the property acquisition tax because potential home buyers are putting off purchases until taxes are reduced.
The government and ruling party tried to douse the flames by saying the new taxes could be applied to recently purchased homes, too. The new legislation, however, doesn’t face a smooth trip through the assembly, given strong resistance from opposition lawmakers and provincial and municipal governments.
In fact, provincial and municipal governments are upset over the potential loss in tax revenue from a lower property acquisition tax, while the opposition camp blasts the government measure as yet another favor for the rich.
The hastiness of the government and the ruling party has generated confusion in the market and political uproar. It takes time for a bill to go through the National Assembly and it is widely thought that the housing market will come to a virtual halt until the new measures - especially when they include tax cuts - are implemented.
But the government failed from the beginning. It belatedly announced that the new tax rates will be applied to transactions made before the new legislation is implemented. The government and ruling party should have told their counterparts about their plan to apply the law retroactively to prevent a further slump in the housing market.
The protests from provincial and municipal governments should not be surprising. They won’t welcome reduced tax revenue. Both the government and ruling party should have consulted local governments prior to the announcement. Instead, they hurriedly organized a task force to come up with ways local governments can make up for the loss in revenue from property taxes.
The fiasco proves that the government and ruling party have been neither discreet nor thorough in concocting the idea and its pursuit. In the meantime, the opposition and local governments must also avoid knee-jerk opposition. The tax cut is essential to rekindle the stubbornly-languid real estate market.
The purchasing tax should be lower and ownership tax higher. Instead of outright protests to the plan, they should present alternatives.