Wed, Aug 09, 2006 - Page 11 News List

Ho brings US training to Taiwan taxes

AMBITIOUS PLANS In addition to reforming inheritance taxes and raising the value-added tax, finance minister Ho Chih-chin hopes to import best practices from the IRS

By Jackie Lin  /  STAFF REPORTER

Minister of Finance Ho Chih-chin gestures during an interview with the Taipei Times yesterday.

PHOTO: LIAO CHEN-HUEI, TAIPEI TIMES

Riding on last year's achievement of launching the Alternative Minimum Tax (AMT) scheme, the Ministry of Finance plans to submit its inheritance and gift tax reform proposal in the next legislative session, which starts next month, finance minister Ho Chih-chin (何志欽) said yesterday.

The proposal will include two parts: Lowering the maximum marginal rate for inheritance and gift taxes from the current 50 percent to 40 percent, and introducing an improved wealth transfer system in the mid-term, allowing taxpayers more flexibility to bestow assets to children.

Slashing the tax rate to 40 percent would reduce incentives for the well-heeled to place wealth abroad simply to avoid the high tax rate, and further lure capital back in the long run, Ho said during an exclusive interview.

Ho, who just took over the ministerial job on July 4, is a tax expert with eight years of experience as the senior economist at the US Internal Revenue Service (IRS) and another five years as the IRS' principal economist.

Inheritance taxes

He estimated that if the tax base remained unchanged, state coffers could lose around NT$6 billion (US$183 billion) annually when the maximum inheritance and gift tax rate is lowered to 40 percent.

Revenues from the two taxes amount to NT$30 billion per year, with NT$20 billion hailing from the inheritance tax and another NT$10 billion from the gift tax.

"Tax revenues might decrease for the first several years but the figure should climb back in the long term due to capital inflows," he said, adding that the ministry is still studying ways to offset local governments' losses.

During the transitional period, Ho also plans to introduce an improved wealth transfer system to allow moderately well-off households, or what he termed the "small rich," more flexibility in giving away their wealth to children.

The ministry just raised the tax-free threshold for gifts to NT$1.11 million this year, and that for inheritance to NT$7.99 million.

But unlike the present situation, in which the tax-free portion of inheritance is only applicable after a parent's death, taxpayers would be able to make use of the amount in advance.

Details such as whether the inheritance tax-free threshold will be further raised are open for discussion, he said.

Such reforms are expected to pave the way for unifying inheritance and gift taxes in order to ultimately establish a life-long wealth transfer system based on the US model, Ho said.

The implementation of the system would require close cooperation between the land administration, banking institutions, and depositary and clearing units to track down each taxpayer's wealth transfer records.

In the next legislative session, Ho also hopes to push for amendments to levy income taxes on military personnel and teachers.

It's "so close, yet so far," Ho said, referring to the ministry's repeated failure to push through the much-anticipated tax scheme.

"The Ministry of National Defense and the Ministry of Education have done their part. Now the finance ministry needs to give it a final push. But of course the decision is still in the hands of the Legislative Yuan," he said.

Value-added tax

However, the plan to reform consumption taxes in the second half of the year will have to be postponed due to political uncertainties and energy price markups, the minister said.

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