When one of Taiwan’s most prominent billionaires, Taiwan Semiconductor Manufacturing Co (台積電) chairman Morris Chang (張忠謀), called for “increasing taxes for the rich” in the name of social fairness and harmony, the Ministry of Finance’s (財政部) Tax Reform Committee (賦稅改革委員會) went in the opposite direction and said tax cuts for the wealthy would be a priority to “encourage economic growth.”
Aside from making lower corporate income tax, excise tax and inheritance tax short-term priorities, the committee is also reportedly considering lowering income tax and has been unwilling to talk about levying tax on capital gains to bring the nation’s tax system more in line with those used in other countries and encourage the return of capital to Taiwan.
The average citizen would find these policies difficult to understand. First, which country is the committee referring to when it talks about bringing Taiwan’s tax system more in line with systems used in “other countries”?
Hong Kong and Singapore’s tax rates are between 15 percent and 20 percent, which are lower than Taiwan’s.
Tax rates in some European countries, meanwhile, are as high as 60 percent. Hong Kong and Singapore already have higher levels of average income than Taiwan, while those in northern European countries are even higher. Whose tax system should we emulate?
Second, it is hard to imagine that failure to lower taxes would prompt the wealthy to move their money elsewhere. If this were true, why would Taiwanese businesspeople continue to invest heavily in China, where the consolidated income tax is 45 percent, compared with Taiwan’s 40 percent?
In reality, the tax burden is only one of the many factors wealthy people take into consideration. They also think of items such as cheap land, cheap labor and market scale—all of which make China an attractive location.
The Cabinet recently vaunted the strength of Taiwan’s economic fundamentals. Wealthy people who do business in Taiwan not only benefit from a business environment with tax incentives and highly skilled labor, but also from a sound legal system and close relations between politics and business. These are factors that cannot be transferred to another country. In cases where businesspeople want to transfer their money to another country, they may very well discover that there are many hidden costs to doing so, which may make them revise their plans.
In addition, if, as many argue, capital is so readily transferable, then it would not matter what Taiwan’s tax rate is because wealthy people could just transfer their funds out of Taiwan at the touch of a button.
Taiwan offers a friendly, safe and profitable environment in which to invest. This is priceless and plays a part in investors’ decision to keep their money here.
In addition, although Taiwan taxes appear to be high, overall tax revenue only accounts for 13 percent of overall GDP, with a tax burden of less than 14 percent.
The problem lies in the imbalance in Taiwan’s current tax mix, which means that wealthier people have an increasingly lower tax burden. Unlike traditional industries, tax incentives exist for the high-tech sector, while military personnel and public school teachers also have guaranteed — and tax exempt — retirement funds, something that blue-collar workers are not entitled to. At present, however, fixing this unhealthy mix appears to be a low priority for the committee.
The Ministry of Finance is lowering taxes for profit-seeking enterprises, the inheritance tax and income taxes for high-income earners, all measures that apply to the wealthy alone. The not-so-wealthy members of society, meanwhile, are left behind, with the ministry paying less attention to a negative income tax system and the cancellation of tax exemptions.
Some of Taiwan’s richest have a conscience and are trying to give back to society and being about changes that would benefit everyone.
However, if the Ministry of Finance and the Tax Reform Committee continue to make the wealthy their No. 1 priority, the less wealthy members of our society will continue to suffer.
Chiang Ya-chi is a graduate student in the School of Law at the University of Leeds.
Translated by Drew Cameron
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