Calls for higher taxes for the wealthy and lower taxes for the poor — as expressed for example by Morris Chang (張忠謀), founder and chairman of Taiwan Semiconductor Manufacturing Co, who says that the top 30 richest people in Taiwan pay less than 10 percent in annual taxes on average — have sparked a debate.
First of all, it is important to remember that wealthy people are not necessarily illegally evading taxes. Industrialists such as Wang Yung-ching (王永慶), chairman of Formosa Plastics (台塑), have overcome many formidable obstacles in building up their personal fortunes and benefited our country by creating job opportunities and increasing national prosperity. If such individuals fulfill their duties under Article 19 of the Constitution to pay the taxes asked of them, we can hardly click our tongues. What we need to be asking, however, is why our government applies such a low tax rate to the wealthy.
The legislature has, over the years, passed some 30-odd bills in the name of promoting economic development — from the Statute of Prizes, Awards and Investments (獎勵投資條例) to the Statute for Upgrading Industries (促進產業升級條例) — that established more than 50 categories of tax benefits. In this body of legislation, as many as 400 minor items qualify for tax breaks as “newly emerging important and strategic industries.” Fiscal statistics show that tax breaks granted under the Statute for Upgrading Industries in 2003 totaled NT$548 million, or 13.3 percent of total real taxation that year. By 2006, that amount had ballooned to NT$1.194 billion, or 18.5 percent of total real taxation.
Even worse, the Income Tax Act (所得稅法) grants unfair tax breaks to those who earn income through dividends. The category of income including dividends for shareholders falls under the regulations from “profit-seeking enterprise income tax,” which can be deducted in whole from a person’s “individual income tax.”
In 2006, a total of NT$218.3 billion was deducted from individual income tax in this way. This means that wealthy shareholders — who may earn as much as 80 percent of their annual income from dividends — end up not paying 40 percent of their income in taxes, but rather as little as 15 percent thanks to the heavy deductions.
The reality is that middle-class wage-earners are paying around 40 percent in taxes, while wealthy shareholders enjoy this lower rate.
Add in any number of extra exemptions and the actual tax rate for the wealthy often drops to below 10 percent. Tax regulations are designed to benefit our industries and investors, not the average worker. This is not only unfair, it slows economic growth and stunts the generation of new jobs. It also hinders the progress of technology and the effective use of resources by turning productive investment into a crucial strategy for securing tax breaks.
While middle-class wage-earners struggle under the burden of a 40 percent tax rate to amass savings, wealthy shareholders enjoy disproportionate tax benefits and evade their share of the responsibility for government services and infrastructure. That explains the anger felt by many taxpayers, who want a system based on the principles of equality and justice.
We support Morris Chang’s proposal to drop all tax benefits granted under the Statute for Upgrading Industries next year.
In addition, we recommend instituting a flat tax rate for every level of income. This would make for an equal and reasonable tax system.
Huang Chun-sheng is a senior consultant for the Chinese Finance Association. Lin Suming is the associate dean of the College of Management, National Taiwan University.
TRANSLATED BY ANGELA HONG
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