Demanding that married couples report their non-wage income together for tax purposes runs counter to tax equality, Taiwan’s constitutional court said on Friday, a decision that will likely spur changes to the country’s tax code.
In a constitutional interpretation on an Income Tax Act (所得稅法) article, the Council of Grand Justices required the Ministry of Finance to revoke the regulation on joint tax filing of non-wage income within two years.
The origins of the decision date back to 10 years ago, when a woman surnamed Tsai (蔡) filed a petition with the court after being asked to pay about NT$540,000 (US$18,000) in additional back taxes.
Tsai said the additional payment was demanded because she had not followed the ministry’s requirement that married couples jointly file their taxes.
In 2000, she failed to report her total taxable income jointly with that of her husband, from whom she had already been separated for 20 years. By being forced to make a joint report of their income, Tsai said, she was pushed into a higher tax bracket for her non-wage income (such as dividend and interest income), according to the ministry.
Married couples are allowed to calculate their tax liability on their salaries and earned income separately, but must combine their non-wage income, which is then taxed at a higher level than if it were taxed separately because of progressive tax rates.
Considering the ministry’s move unfair and legally questionable, Tsai filed an administrative lawsuit against the ministry the following year. She lost the suit, which prompted her to file a petition for a constitutional interpretation on the regulation, which resulted in the court’s constitutional interpretation No. 696 on Friday.
The grand justices ruled that the regulation was also not conducive to protecting the institutions of marriage and the family because it constituted a “marriage tax penalty.”
In response, the Ministry of Finance said the ruling had broad implications and said it would have to study ways to amend existing laws to take the court’s decision into account.