Amendment to the Income Tax Act clears the Legislature
By John Liu ,The China Post
May 17, 2014, 12:06 am TWN
TAIPEI, Taiwan -- An amendment to the Income Tax Act cleared the Legislature after the third reading yesterday, increasing taxes levied on the wealthy and reducing taxes levied on average income earners.
The tax reform was a component of a package launched by the Ministry of Finance designed to beef up the country's financial system. The government will exact higher tax on big shareholders and high-income earners, as well as financial and insurance companies. The business tax for financial services was adjusted from 2 percent to 5 percent.
The deductable for singles was increased from NT$79,000 to NT$90,000. The deductable amount also increased for couples, from NT$158,000 to NT$180,000. For physically or mentally disabled earners, the deductable was increased from NT$108,000 to NT$128,000. The MOF estimates that up to 7 million people will benefit from tax reform, resulting in a NT$10 billion tax reduction for all.
The tax reform will increase tax payments for about 9,000 people, or those at the top of the earning pyramid. Kuomintang (KMT) lawmaker Lai Shyh-bao (賴士葆) hailed the amendment as the “largest tax increase in history.” He said the reform will reduce the gap between the rich and the poor and contribute to easing social tensions.
Changes to the Integrated Income Tax System
Changes were also made to the Integrated Income Tax System currently applied in Taiwan. Under the system, corporate earnings and shareholder dividends are not treated separately. The system allows an investor who receives a divided from a company to receive tax deductions for taxes the company has paid. With the tax reform, the original 100-percent deductible rate was adjusted to 50 percent.
In addition, shareholders who reside outside of Taiwan will also be exacted a 10-percent additional tax. All in all, the amendment to the integrated tax system will generate NT$50 billion in additional tax revenues, the MOF estimated.
Changes to the Individual Income Tax System
Changes were also made to the Individual Income Tax system. The number of income brackets grew from five to six. Those in the top income bracket, who earn NT$10 million or more per year, will see their tax rate increase from 40 percent to 45 percent. This is also known as the “rich people's tax” locally.
The amendment will take effect next year, and will be applicable for tax returns in the following year.
Two Months' Salary Payment for New Mothers
An amendment to the Labor Insurance Act also cleared the Legislature after the third reading yesterday. Compensation to new mothers increases from one month of salary under the original regulation to two months after the amendment. In addition, if a mother gives birth to twins, her compensation will double. The amount of compensation will increase in proportion to the number of newborns.
As the insurance for public servants grants two months of salary payments for new mothers, lawmakers believe it should also apply to the general public, and therefore proposed the change.
The Ministry of Labor said the new measure is part of its efforts to encourage locals to have children, and estimated that a total of 130,000 people will benefit from the reform on an annual basis.