President Ma Ying-jeou (馬英九) said at a Chinese Nationalist Party (KMT) meeting on Feb. 1 that there was no reason for a new tax targeting the wealthy, because the rich already pay more tax than other people.
Addressing the point that the government receives 75 percent of its income tax contributions from salaried employees, Ma cited statistics showing that about 40,000 wealthy households — 0.7 percent of all taxpayers in Taiwan — paid income tax at the highest rate of 40 percent in the fiscal year 2008. Together, they paid almost 47 percent of all income tax collected showing, he said, that the government does not get most of its income tax from the salaries of typical employees.
However, Ma is distorting the facts, so as not to levy a capital gains tax.
When we say the government collects 75 percent of its income tax revenue from salaried employees we mean that this payroll category accounts for 75 percent of revenue in all income tax categories in Taiwan. Since the percentage is much higher than the average of 49 percent in Organisation for Economic Co-operation and Development (OECD) countries and the average of 55 percent in the US, it is considered one of the indices by which tax reform is measured.
Those who pay income tax at the highest rate are mostly high-paid employees obliged to pay the required amount of tax in their tax band. They are not “the rich.” More than 80 percent of the rich’s wealth comes from stocks and real estate, not fixed salaries. Under the current tax system, securities transactions are tax-free, and taxes from property transactions account for less than 0.4 percent of income tax revenue.
According to a Ministry of Finance report, in 2006, of the 40 Taiwanese with the highest income, 17 of them paid 1 percent tax, and eight of them did not pay anything.
Because of the absence of a capital gains tax and excessive preferential tax treatment, the rich are paying too little tax, contrary to Ma’s claim. Only a few countries, such as Taiwan and China, levy no taxes whatsoever on securities transactions. As for the US and European countries, such taxes are included in income tax and taxed progressively, along with income.
I once suggested to the Cabinet’s Tax Reform Committee that we include gains made on individual securities transactions in the Income Basic Tax Act (所得基本稅額條例), which would then be an alternative minimum tax system. According to the proposal, only those who made annual gains of more than NT$6 million (US$202,800) from such transactions would be taxed, at a rate of 20 percent.
By thus excluding the majority of small investors there would be less resistance to reform. Also, this is the simplest way to introduce a capital gains tax.
Another way of looking at the problem is that salaries in Taiwan represent only 44.5 percent of GDP. That is the lowest among the four “Asian Tigers” and much lower than Japan’s 63 percent. However, the government still collects 75 percent of its income tax from salaried employees.
Ma distorts the facts to block fair tax reform, which could be considered an attempt to curry favor with the conglomerates that helped him win the election.
When the Alliance of Fairness and Justice, also known as the Pan-Purple Coalition, pushed for an alternative minimum tax system before, then-legislator Christina Liu (劉憶如) obstructed it. She boycotted it on technical grounds and also cited the interests of conglomerates as a reason. Yet Ma appointed Liu minister of finance despite her concessions to the conglomerates. Clearly he is currying favor with them now and trying to fob the public off with token reforms.