The Cabinet yesterday approved a tax reform proposal that would cut the maximum estate and gift taxes from 50 percent to 10 percent in a move that critics say would cause taxation and socioeconomic inequality.
Also included in the proposal were plans to increase standard and special tax deductions for salaries, tuition fees and households with disabled family members. The inclusion of the exemptions came earlier than expected and was seen as a bid to counter criticism that the tax plan would only benefit the rich.
“Many people think that estate and gift taxes are big revenue generators, but in fact estate and gift tax revenues average only around NT$20 billion [US$612 million] to NT$30 billion a year, which is a trivial part of the government’s total tax revenue of NT$1.7 trillion,” Minister of Finance Lee Sush-der (李述德) said.
Lee said the measure with the greatest influence on taxation fairness was the tax exemption expansion scheme, which would benefit 3.6 million households.
“Raising the tax exemption limits in the four items will decrease the tax liability of a dual-income family of four with two college students, for example, by between NT$5,820 and NT$38,800, depending on the marginal income tax,” Lee said.
Lee made the remarks at a press conference following the weekly Cabinet meeting.
Under the proposals, a flat 10 percent tax rate would be set for both the estate and gift taxes, replacing 10 levels ranging between 2 percent and 50 percent.
The proposal also raises the estate tax exemption from NT$7.79 million to NT$12 million and the gift tax exemption from NT$1.11 million to NT$2.2 million.
“Lowering the rates will attract more capital into the country because wealthy people won’t bother depositing money abroad to avoid paying taxes if the cost of tax evasion is equivalent to their estate tax and gift tax,” Lee said.
Estimates have shown that high tax rates did not generate more tax revenue, Lee said, adding that only 4,684 of the 88,170 people with potential estate tax liabilities and only 27,597 of the 188,704 people with potential gift tax liabilities paid the tax last year.
“Moreover, most of the 4,684 payers of estate tax were from the middle class rather than wealthy individuals, as only about 100 individuals had more than NT$100 million in tax liabilities,” Lee said.
Under the exemption expansion scheme, the Cabinet raised the standard deduction for a single taxpayer from NT$46,000 to NT$60,000 and that for a married taxpayer from NT$92,000 to NT$120,000.
The government suggested increasing the special deductions threshold for salaries from NT$78,000 to NT$100,000, and for households with disabled family members from NT$77,000 to NT$100,000.
Meanwhile, the Cabinet said it would allow taxpayers to claim a special deduction of NT$25,000 for each child attending college, while currently only NT$25,000 per household is allowed, regardless of how many children are enrolled in higher education.
Lee said the government expected the estate and gift tax reduction proposal to cause tax revenues losses of about NT$20 billion and the exemption changes to cause a loss of NT$1.54 billion.
Also See: Cabinet approves setting gift tax at 10%
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