Ministry of Finance introduces measures to raise tax efficiency
By John Liu, The China Post
February 25, 2014, 12:51 am TWN
TAIPEI, Taiwan -- In an effort to beef up the nation's financial health, the Ministry of Finance (MOF) rolled out new measures to manage the treasury more effectively, including tax reforms that aim to channel capital held by the wealthy toward the less advantaged.
Between NT$27 and NT$30 billion worth of national debts are accumulated every year. With the national debt level approaching the debt ceiling, the MOF rolled out measures to contain the financial situation in a press conference yesterday.
In order to tap new cash flows, the MOF plans to make adjustments to the taxation system in order to better utilize assets in the government's portfolio, to review privatization process so as to release stocks to the public, and to enhance the efficiency of government operations.
While taxation adjustment was one of the many measures rolled out by the MOF to beef up Taiwan's financial structure, it is also the issue which has drawn the most attention from the public recently. Under the new plan, the MOF will make changes on three taxes, which Finance Minister Chang Sheng-ford (張盛和) termed as a "feedback tax."
Business Tax on Banking and Insurance Industries
Sales taxes levied on banking and insurance industries will be hiked from 2 percent to 5 percent. Chang stressed, however, that the increase is not really a "tax hike," as the tax rate was originally set at 5 percent and was only adjusted downward to 2 percent in 1999 to write off bad debts in the wake of the Asian Financial Crisis.
Over the years, however, businesses from the two sectors have gained traction, with the banking industry taking in NT$255.9 billion worth of profit in 2012 and the insurance industry taking in NT$46 billion. As the two sectors have long been supported by the government, they ought to contribute at this crucial time, Chang said, adding that the adjusted tax rate is consistent with rates applied in Japan, South Korea and many western countries. With the new tax rate, the MOF expects to collect NT$20 billion in additional tax revenues per year.
Imputation Tax System
The MOF also intends to make adjustments to the imputation tax system. It is a system that allows an investor who receives a dividend from a company to also receive a tax credit for taxes the company has paid. With the adjustment, the MOF intends to halve the amount of deductibles that may be applied toward individual income tax.
According to Chang, since the imputation tax system's implementation in 1998, the government's tax collection has been reduced by NT$80 billion per year, totaling NT$1 trillion over the past decade. As most developed countries in the Organization for Economic Co-operation and Development network have adopted similar adjustments, Taiwan is following suit. This new measure is expected to bring in NT$40 to NT$50 billion worth of taxes per year, the MOF said.