The Ministry of Finance (MOF) yesterday announced that it is to raise both the business tax on banking and insurance institutions, as well as the consolidated income tax on high-income groups, in a bid to increase tax revenue to about NT$80 billion (US$2.3 billion) a year and narrow the government’s budget gap.
The ministry is to hike the business tax on banks and insurance firms from 2 percent to 5 percent, a rise that is expected to boost tax revenues by NT$20 billion per year.
The ministry’s plans to adjust the tax brackets for the consolidated income levy, as well as the maximum limit of the imputation tax system, may put an additional NT$60 billion in the nation’s coffers.
The planned changes are part of the ministry’s fiscal reform package and are aimed at bolstering the government’s bid to reduce the budget deficit, which stands at between NT$270 billion and NT$300 billion a year.
The planned tax adjustments still have to be approved by the legislature before they are officially implemented.
Following the news, the TAIEX dropped 0.48 percent, or 41.25 points, to close at 8,560.61 yesterday. The decline was led by shares in the financial sector, which shrank 1.69 percent during the session, with investors apparently worried about the proposed tax hikes.
Minister of Finance Chang Sheng-ford (張盛和) said the adjustments are unavoidable and must be implemented urgently if the nation’s fiscal soundness is to be maintained.
The budget deficit has been widening for years and the government has less than NT$300 billion in loans available before it hits the debt ceiling. In addition to debt financing, the government also needs to slash expenses and raise revenue to counter the deficit problem.
Chang said the ministry’s 49-item fiscal reform package could boost revenue by NT$150 billion for next year’s budget.
The government is planning to raise NT$45 billion in revenue by adjusting its expenditure structure, and aims to generate another NT$40 billion by releasing shares in state-run enterprises and activating existing government-owned assets with low utilization.
Regarding the tax adjustments, the government expects to “use the concept of ‘feedback tax’ to lead high-income groups and certain industries to contribute to society,” Chang told a press conference last week, after finalizing the proposals with Premier Jiang Yi-huah (江宜樺) and other Cabinet members.
Another of the ministry’s proposals entails raising the taxation rate for households with annual taxable income of more than NT$10 million to 45 percent, which could boost tax revenue by about NT$10 billion annually.
The current top rate of consolidated income tax is 40 percent and applies to annual taxable income in excess of NT$4.4 million.
The reform package also tackles the imputation tax system, which is designed to reduce overlapping payments by shareholders who pay both income taxes, Chang added.
The government also plans to lower the tax credit available to individual shareholders receiving cash dividends by up to 50 percent, from the full amount currently applied.
The ministry also unveiled several supplemental measures to lower the taxation burden for the general public, and incentivize firms hiring additional employees and focusing on research and development.
The ministry will send the package to the Cabinet later this week and expects the legislature to pass the tax amendments by the end of this legislative session, Chang said.