Tue, May 20, 2014 - Page 8 News List

Tax reforms are small change by comparison

By Feng Chien-san 馮建三

The legislature has passed two legal amendments to the Income Tax Act (所得稅法) and the Value-added and Non-value-added Business Tax Act (加值型及非加值型營業稅法) which mean that talented people will be able to contribute even more and this is a good thing.

The Ministry of Finance has called the amendments “the biggest tax increase in history.” Yet just how much is “the biggest tax increase in history?” NT$65 billion (US$2.15 billion).

Is that a lot? Answering that question requires a comparison. NT$65 billion is 0.446 percent of the nation’s GDP last year.

What are described today as “neoliberal economic measures” were forcefully implemented in Chile after a bloody coup in 1973. However, lately there has been a change in direction in Chile.

One of the policies promoted by Chilean President Michelle Bachelet prior to her election was a set of tax reforms that promised to increase Chile’s GDP by 3 percent and would be invested in social welfare expenses, such as care for children and the elderly.

She is currently working on implementing these goals through legislation and although the opposition is opposed to the policies, the ruling coalition holds a majority in both houses and there is a consensus in the foreign media that the tax reforms will be fully implemented despite the opposition.

It is clear that compared with Chile, Taiwan’s tax reforms are quite minor. Perhaps the question is whether Taiwan’s taxes are already too high. Last year, tax revenue as a proportion of GDP was less than 13 percent. The same figure in Chile was 20 percent.

The finance ministry must work harder. Tax revenue in Taiwan in 1970 made up more than 17 percent of GDP and the economy grew at a rate of almost 8 percent.

In recent years, both economic growth and wealth redistribution have dropped. There is no absolute relationship between the level of tax revenue and economic growth, and sometimes the two might even move in opposite directions. This is not particular to Taiwan, but can also be seen in both southern and northern Europe, as well as in the US.

“Creating a capital gains tax that conforms to demands for tax justice still requires a lot of hard work” — that was the headline of a report on the legislature’s tax reforms in the Chinese-language United Daily News on Saturday last week.

This is logical, and if our legislators are not both deaf and dumb, how could they fail to notice the same thing?

Furthermore, this spring, French economist Tomas Piketty stirred things up with his book Capital in the 21st Century, which some say is the book that will have the greatest impact on the political economy in the next 10 years.

The core of his argument is that the tax on capital gains — as well as on land which cannot be separated from that capital — must be greatly increased.

Therefore the best thing would be for countries to adopt similar rules in order to once again build a world where everyone contributes according to his or her ability; a world where the wealthy contribute more and others contribute what they can.

Feng Chien-san is a professor of journalism at National Chengchi University.

Translated by Perry Svensson

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