Recently the government has let it be known, on several occasions, that it has not yet ruled out levying a tax on luxury apartments or goods, or a capital gains tax. The idea behind this would be to increase the tax burden on the wealthy in an effort to reduce the rich-poor divide in the country, which has been growing steadily over the past few years. Given the tax reforms the government has been introducing since President Ma Ying-jeou (馬英九) came to power in 2008, one doesn’t hold out that much hope.
When Ma had just taken office, he called together representatives from industry, the civil service, academia and civic groups to get involved in the Tax Reform Commission. The commission announced, with much fanfare, that the government would take a four-pronged approach to practical tax reform. It would stimulate economic growth, create a sustainable environment for such growth, improve social equality and increase Taiwan’s international competitiveness.
Just a few months later, several of the academics involved in the commission proposed a temporary suspension of operations, saying they felt their expert opinions were not being taken seriously. They were not happy with being part of a rubber-stamp endorsement for the government’s policy of reducing taxes.
One of them, Chen Ting-an (陳聽安) of the Taiwan Economic Association, excoriated the government for wanting to reduce the inheritance tax to 10 percent, with nothing in place to implement it. It was polishing the cart before the horse was even born. Soon after, the civic group Alliance for Fair Tax Reform pulled out of the commission, saying that the reforms being considered were Robin Hood in reverse. Giving more tax breaks to the rich would make the tax system even more unfair: Reform would only widen the wealth gap and increase government debt.
By this point, the commission was a reform commission in name only. Any tax reforms it came out with were likely to be limited in nature and destined to hemorrhage national tax revenue.
According to last year’s National Audit Office report on the central government’s final accounts, the Ma administration had already implemented 14 tax cuts, including on the commodity, inheritance and income taxes. By the time the amount of tax revenue not yet declared or accounted for has been deducted, the government has seen at least NT$80 billion (US$2.6 billion) for the period from 2008 to this year escape.
The government also loses a considerable amount of tax revenue through undercharged tax, which last year was in excess of NT$200 billion. After annual revenue and expenditure have been accounted for, this leaves us with a shortfall of NT$161 billion. Unpaid public finance debt over a year old now stands at more than NT$4 trillion, up from NT$2.6 trillion at the end of 2001.
Further tax reductions means less revenue, and when there are insufficient incoming funds, the only option is to borrow more and extend the existing debt. The problem with this, of course, is that the only way the government is going to be able to repay this money is through raising taxes. Unfortunately, the government’s main source of tax revenue is from the salaried, making up around 70 percent of the pie. If the government excludes capital gains on stock trading and land transactions by the more wealthy people at the top of the pyramid, the tax system will be unfair.
As one of the top commission consultants, Cyrus Chu (朱敬一) of Academia Sinica has said: “The past couple of years have been a dark time in the history of taxation [in Taiwan] and unless the matter is thoroughly investigated, it is going to be very difficult to achieve any new tax reform in this country.”
Leou Chia-feng is a senior research fellow at the Taiwan Thinktank.
TRANSLATED BY PAUL COOPER
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