Mon, Aug 17, 2015 page8

• Tax system in need of an overhaul

  • By Fan Yun 范雲
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  The Chinese National Federation of Industries late last month released a white paper saying that the non-wage labor costs covered by enterprises are too high. The critique prompted responses from the camps of the two major parties’ presidential candidates, with Lin Wan-i (林萬億), a top policy adviser to Democratic Progressive Party (DPP) Chairperson Tsai Ing-wen (蔡英文), using an opinion piece in the Economic Daily News to urge the government not to increase the business sector’s burdens.

  It seems enterprises are having a hard time, and that they are carrying a heavy burden, but have workers had an easier life in the past few years? Taiwan’s GDP has grown 1.5 times over the past 16 years, but wages have remained largely unchanged.

  If the economy grows, but both enterprises and workers are suffering, what is the problem? Why is the government, which is responsible for caring for the public, still hiding and letting business and workers fight it out?

  The government suffers financial revenue shortfalls because of the nation’s unfair tax system, so when it considers the social welfare budget, it either squeezes money from the business sector or tells workers to fend for themselves.

  If Taiwan’s tax system placed importance on income distribution, it would raise more taxes from conglomerates and be able to cover more social welfare services. This would relieve the burden of small and medium-sized enterprises and workers.

  Unfortunately, Taiwan’s tax system is strongly biased toward conglomerates. Data from 2011 shows that the average effective tax rate for 24 Taiwanese corporations with an annual profit of more than NT$10 billion (US$309 million at current exchange rates) was only 9.1 percent. This is much lower than what many salaried employees have to pay. Thanks to the government’s many tax items, these big companies were able to enjoy tax reductions or even exemptions.

  From the now-abolished Statute for the Encouragement of Investment and Statute for Upgrading Industry to the Statute for Industrial Innovation (產業創新條例), the government offered tax reductions or exemptions of more than NT$1.4 trillion between 2001 and 2013. This is almost equal to the central government’s annual income.

  The burden is so heavy on small and medium-sized enterprises because the government is overprotective of conglomerates, which has resulted in an unfair tax system. The government has passed all responsibility for looking after the public to small and medium businesses.

  In addition, when the Estate and Gift Tax (遺產及贈與稅) was reduced from 50 to 10 percent in 2008, the Cabinet’s Tax Reform Committee said that it would be necessary to increase the Consumption Tax (消費稅) and Capital Gains Tax (資本利得稅). However, the DPP government rushed through the tax cut without proposing complementary measures, causing treasury losses of tens of billions of New Taiwan dollars.

  In 2010, the Chinese Nationalist Party (KMT) government reduced the Profit-seeking Enterprise Income Tax (營利事業所得稅) from 25 to 17 percent, causing the treasury to lose about NT$100 billion yearly.

  The Financial Supervisory Commission and the Taiwan Securities Association recently triggered a wave of calls for the abolishment of the Capital Gains Tax on Securities Transactions (證券交易所得稅), making it clear that they are only concerned about income tax, not the property and capital gains taxes. As a result, wages account for 73 percent of the revenue brought in by the individual income tax. As reform on the securities transactions tax is repeatedly delayed, one can only wonder whether the spirit of fair taxation will die out completely.

  The state should stop looking after big corporations and look at the burden borne by the working class and small and medium-sized enterprises. The nation’s leaders should not shirk their responsibility.

  The nation’s unfair tax system should have been overhauled long ago, and our leaders should no longer evade the problem.

  Fan Yun is a professor of sociology at National Taiwan University and convener of the Social Democratic Party.

  Translated by Eddy Chang
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