Ministry of Finance proposes extensive overhaul of taxes

The Ministry of Finance yesterday proposed a series of tax cuts, which, if approved by the legislature, would be the largest overhaul of the taxation system in 40 years.

The ministry's proposal includes cutting the highest rate of personal income tax from 40 percent to 35 percent after the year 2010 and adjusting the business tax rate downwards from 25 percent to 15 percent.

The cuts would result in an annual reduction of more than NT$50 billion (US$1.51 billion) in government income.

Maximum rates of inheritance and gift taxes would also be reduced from 50 percent to 25 percent, the ministry said.

A date for implementation of the new tax rates has not yet been set, and it depends on whether the Statute for Upgrading Industries (促進產業升級條例) is successfully phased out by 2009, Minister of Finance Ho Chih-chin (何志欽) said.

"The ministry will gradually slash income taxes and inheritance and gift taxes by expanding the tax base and simplifying the taxation system," Ho said.

Ho made the remarks in response to lawmakers' questions during the legislature's Finance Committee meeting yesterday.

The ministry was invited by the committee to report on its tax reform proposal.

As a tax expert with eight years of experience as a senior economist at the US Internal Revenue Service (IRS) and another five years as the IRS' principal economist, Ho is seen as a key figure in the overhaul of the nation's fragmented and complex taxation system.

But political infighting and a lack of public consensus have made tax reform difficult.

The ministry has not been able to push forth new amendments to tax laws since the launch of the Alternative Minimum Tax (AMT) scheme in 2005.

The proposal was attacked by lawmakers, who criticized the tax reduction plan as a gimmick to win next year's presidential election.

Chinese Nationalist Party (KMT) Legislator Lai Shyh-bao (賴士葆) criticized the reforms for not imposing capital-gains tax on stock investments and land transactions.

"This is cheerleading for Premier Su Tseng-chang (蘇貞昌) [one of the Democratic Progressive Party's presidential contenders]," Lai said.

Ho argued that integrated tax reform could boost tax revenues.

The ministry hopes to raise the national taxation rate, a gauge that divides taxes by GDP, from the current 13.8 percent to 15 percent, which will increase taxation by NT$180 billion.