(本文翻譯自 陳冲 稅基已固 何不照顧勤勞所得者 2022-07-21)
As the pandemic and the inflation swept across the world, people are feeling the pinch now. Moreover, the income tax declaration has just ended as the stock market tumbled these days. It can be imagined how heartbroken the taxpayers feel, especially those whose salary accounts for the majority of their income. Looking at the individual income tax structure last year, we can see that 71% are from salaries and wages. Will these people who work hard all day just to meet both ends feel indignant when they see others earn more money and enjoy tax exemption by simply renting out houses or trading properties?
In early days, the government was in serious financial difficulties so people teamed up together during those hard times. As the economy grew steadily these years, especially in the past eight years, it’s showed that the government overtaxes people except for the tax undercharge in 2020 due to the pandemic. It was even overtaxed for NT$432.7 billion last year. The government, of course, consider itself to be successful in boosting the economy but other reason may also lead to the huge overtaxation. For example, the distorted budget designation, the high tax rate, rising prices and the poor fiscal management, etc. might also make the fiscal imbalances between central and local governments broadened. For those aforementioned hard-working plodders whose income mainly comes from salary, increased disposable income might be their humble expectations. County mayoral and congressional elections will be held at the end of the year. Can’t you the candidates bring out some touching policies to strike resonance in electors’ hearts?
The Constitution stipulates that citizens are obliged to pay taxes. 70 years ago when the Income Tax Act was enacted, the legislative purpose was actually quite ambitious, hoping to tax on global basis income. However, since “overseas income sources are not easy to control and would be nuisances if implemented”, the law was revised 60 years ago, changing from residence-based taxation to source-based taxation which means that government would tax only income from sources in the Republic of China while abandon the taxation of overseas income. Although pragmatic and simple in inspection, it somewhat boosts capital outflow, which seems not so good from the perspective of tax fairness and would further affect economic development. In 2005, it was again changed to residence-based taxation when the Income Basic Tax Act was enacted. However, to avoid impact and resistance, the Executive Yuan delayed the execution time to 2010. Since then, the legal framework that takes taxpayer’s global income as tax subject has gradually formed.
The problem is that we only have legal framework but no ability to enforce and also tax cooperation with foreign countries bites the dust due to failed diplomatic issue. For heaven’s sake, at the time residence-based taxation started to take hold, the US also happened to pass the Foreign Account Tax Compliance Act (FATCA) in 2010, assigning the Treasury to request information from foreign financial institutions. The hegemonic law compelled other countries to actively thrash out countermeasures. The OECD launched the international version of FATCA, the Common Reporting Standard (CRS), in July 2014. Under the rule, a country can obtain overseas tax information of specific citizen as long as other jurisdiction approves. As for the effectiveness of implementation, it depends on how capable the Ministry of Finance and Ministry of Foreign Affairs are.
In line with the international trend from tax competition to tax cooperation, CFC (Controlled Foreign Company), has recently become a hot topic among the board of directors in major companies. The model of keeping profits abroad to avoid tax has faced challenges all over the world. The reason is that since Article 43-3 of the Income Tax Law was added in 2016, the CFC system for profit-seeking enterprises was established, and Article 12-1 of the Income Basic Tax Act was added to set CFC system for individuals, the Legislative Yuan even confirmed that CFC will be fully implemented domestically since 2023. Seeing that Taiwan is now following the international trend of anti-tax avoidance, business operators and executives have been discussing the impact of CFC on taxation and the solutions. Although the conclusions may vary, the unanimous consensus is that after years of “boiling frog”, the government has already completed the legal system to fully master the global basis tax base.
Taiwan’s government has overtaxed people for several years. From 2023 onwards, there will be sufficient tax base and the country is no longer short of money. At this time, can we sympathize with the underprivileged and do research on truly fair tax reform, such as tax reduction on wage earners (especially young people), increased standard deduction/special deductions, tax exemption for residences owning one house, taxation on property transactions, and the establishment of independent agency of taxpayers’ protection, etc. If the candidates really understand the root causes of people’s grievances, they will know that give an inch and take a mile is not a proper method.