All Eyes are on the Legislative Yuan
United Daily News editorial (Taipei, Taiwan, ROC)
December 25, 2014
Executive Summary: Today, DPP Legislators Wu Ping-rui and Hsueh Ling will hold a public hearing in the Legislative Yuan. They will discuss the sixth of 66 articles of the Income Tax Act. This part of the tax law concerns the “unified tax". The third reading was held in May of this year. It is expected to go into effect in January of next year, In recent years, certain provisions have helped reduce the gap between the rich and the poor. But legislators are now trying to overturn them. The "halving of the deductible dividend rate" requirement was changed to next year's new surplus. This is no trivial matter. If it passes, it will mean a 14 year moratorium.
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Today, DPP Legislators Wu Ping-rui and Hsueh Ling will hold a public hearing in the Legislative Yuan. They will discuss the sixth of 66 articles of the Income Tax Act. This part of the tax law concerns the “unified tax". The third reading was held in May of this year. It is expected to go into effect in January of next year, In recent years, certain provisions have helped reduce the gap between the rich and the poor. But legislators are now trying to overturn them. The "halving of the deductible dividend rate" requirement was changed to next year's new surplus. This is no trivial matter. If it passes, it will mean a 14 year moratorium.
The nine in one elections have just ended. DPP Chairman Tsai Ing-wen gave a victory speech. In it she promised "severe disciplinary measures for political corruption” and an “absolute determination to fulfilling public expectations.” Her words were still ringing in our ears when green camp legislators went on the offensive, and gave tax cuts to the rich. The DPP's practice of "saying one thing while doing another” should raise serious concerns among Taiwan public.
Allow us to help the reader in understanding the amendment to Income Tax Law 266. Originally taxes on for-profit enterprises and consolidated personal income were levied separately. In 1992, then Finance Minister Chiu Cheng-hsiung proposed a "unified tax." This amended tax law would allow "personal dividend income" to be included in the consolidated income declaration. One could then deduct the full amount of "for-profit enterprise income" paid by one's company, call it a combined "comprehensive personal income tax” and "company profits." This amendment reduced the government's annual tax revenue by nearly 100 billion NT.
This “two taxes in one” was indeed used by certain European and American countries. But a growing number of countries have dispensed with such a system. They no longer see business taxes and income taxes as “redundant". Also, many countries are experiencing increasing inequality. They are no longer willing to grant the wealthy tax credits on dividend income. As a result, they have modified the unified tax system. They have returned to the old "two tax system with no credits". In the first half of this year, the legislature discussed whether the unified tax regime should be abolished. Eventually it compromised, and allowed "half credits". This amendment has already been compromised by Taiwan's fiscal constraints and the need to raise taxes. Who knew that the consortia and the ultra wealthy are still dissatisfied. Shameless politicians still shield the rich. The new law has yet to go into effect, and it has already been subverted.
Who benefits from the subversion of the 66 article "Income Tax Act"? Why wealthy tycoons, of course. Statistics show that the vast majority of them, over 51.7%, qualify for this deduction. The lowest are in the 30% marginal tax rate bracket. Some are in the 40% marginal tax rate bracket. Their taxes run as high as 40 billion NT. Therefore when lobbyists attempt to overturn the law, we are not talking about middle class taxpayers who taxes run in the tens of dollars, or hundreds of dollars. But approximately 10,000 ultra wealthy individuals. Taiwan's increasingly unequal distribution of income is an indisputable fact. Domestic wages have remained frozen for the past ten years. Many middle class people cannot afford to buy a house. Young people cannot afford to have children, so they don't. This is one of the reasons for ruling party's recent defeat. Now these legislators are shieldig the ultra rich. These legislators dared to overturn a fair tax reform plan that took ten years to pass.
Rhetoric about legislators shielding the rich is not worth refuting. These legislators say they want to implement the tax law only after "company earnings have been issued." But this will probably lead to a 14 year delay. It is the same as no implementation whatsoever. Thes legislators say they initially intended full deductions for retained earnings, but the government would have to implement "trust protection". This is “Kingdom of Formosa” logic. Governments the world over raise or lower tax rates routinely. None of them ever talk about delays in order to implement "trust protection". Those who want tax cuts to enrich themselves always say, "We can expand the tax base with lower tax rates, and increase investments." But as everyone knows, that was the rationale 16 years ago for the "unified tax". In fact, tax cuts did not increase investment in Taiwan. Instead investments significantly declined. These self-enriching lies have been laid bare. Why should anyone still believe them?
Today is an important day. The people must look at the spectacle in the legislature and ask themselves which legislators are on the side of the 99%, and which are on the side of the 1%. The people must look at whether those spouting fairness and justice before the election are phonies. The same is true of the capital gains tax "large investors clause". After duping you into voting for them, will they revert to business as usual? The people will see whether Tsai Ing-wen's victory speech was straight from the heart, or mere feel good rhetoric. The people will see whether the Finance Directorate, and even Executive Yuan President Mao has a backbone. The people will see whether they repudiate the wealthy and humiliate the legislators, or whether they will say, "We respect the decision of the legislature."
The people are looking at what is going on in the Legislative Yuan, and they will not forget.
2014.12.24 01:52 am