Taiwan: Government proposes luxury tax as inflation accelerates in February
March 7, 2011
In February, consumer prices rose 0.76% over the previous month, which followed the virtually flat result recorded in January. The monthly reading reflected a surge in household operation costs (+38.38% month-on-month) as nurse and maid service costs shot up during the Chinese New Year Festival. As a result of the pronounced price increase in February, annual headline inflation rose to 1.3% from 1.1% in January, which was just in line with market expectations. Meanwhile, the core inflation index, which excludes volatile categories such as fresh food and energy, rose 1.02% over the previous month. Nevertheless, annual core inflation remained at January's 0.8%, and annual average headline inflation was also unchanged at January's 1.0%. In order to stem inflationary pressures, the government proposed a ?luxury tax? on investment housing and luxury items on 10 March. The proposal aims to impose a 10% - 15% tax on properties sold within one to two years of purchase and still requires approval by parliament. However, given the government's large majority in the legislature, the bill is likely to be approved and enter into force on 1 July. Perng Fai-nan, Central Bank Governor, favoured the initiative, stating that the tax will be more effective in curbing property prices than monetary policy alone. The government expects inflation to average 2.0% in 2011.