Under the “ability to pay” principle, having rich people pay more taxes is the basis of a fair tax system.
However, in Taiwan, the tax system often helps high-income earners pay less taxes, which is essentially “robbing the poor to give to the wealthy.”
For those whose net consolidated annual income was higher than NT$10 million (US$333,890) from 2015 to 2019, the average amount of their “itemized deduction” was as high as NT$1.4 million, much higher than that of other tax brackets, the National Audit Office’s audit report on the financial statements of the central government showed.
Furthermore, as many as 267 Taiwanese households whose gross consolidated income exceeded NT$2 million did not pay any taxes in 2019, as their net consolidated income was “zero” after tax-exempt income and various tax deductions were subtracted from gross consolidated income, a report from the Legislative Yuan’s budget center said.
Among the households, two families’ gross consolidated income exceeded NT$20 million without having to pay any taxes. Such unfairness continues to grow every year. For example, the number of tax-free households in this bracket was 48 in 2010, but rose to 221 in 2017, before reaching 931 in 2018.
Taiwan’s income tax system is based on progressive tax rates, and divided into five brackets ranging from 5 to 40 percent. When the standard deduction or the special deduction from salaries is increased by a fixed amount, the tax-saving effect varies for taxpayers who are subject to different rates. For instance, if the tax deduction is increased by NT$10,000, a low-income earner with a 5 percent tax rate only pays NT$500 less in taxes, while a high-income earner with a 40 percent rate pays NT$4,000 less in taxes.
Academia Sinica member Cyrus Chu (朱敬一) once cited statistics showing that the wealthiest 1 percent of families reap 11.29 percent of total income in Taiwan. With their advantages, including political connections, business links and sources of information, wealthy people have a higher return on investment than average citizens, whether in stocks or real estate, contributing to the phenomenon of “the rich getting richer.”
Unfortunately, Taiwan’s taxation policy is seriously distorted to encourage unearned gains and differentiated treatment, as demonstrated by flawed deduction rules. The former refers to windfall profits from securities and land transactions, while the latter refers to tax savings, which only the wealthy can really benefit from.
If the tax system, which strongly favors the rich, remains unchanged, the government would continue to help the rich legally accumulate more wealth. This is likely to widen the income gap between the rich and poor, which is where public anger lies.
The wealth gap is growing wider, and the income and property tax system is becoming increasingly unfair. The Ministry of Finance should reform the tax system to meet the public’s expectation if it wants to be regarded as a government for all.
Wei Si-yuan works in the information technology industry.
Translated by Eddy Chang
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