In a recent lunch meeting with Executive Yuan officials, National Association of Industry and Commerce representatives called on the government to abolish the 5 percent income tax on undistributed corporate earnings — generally known as a retained earnings tax — and said that if the proposal could not be achieved in one go, the government could consider lowering the tax rate to zero in stages.
The association said that the levy on retained earnings is a supporting measure of the imputation taxation system, which the government introduced in 1998 to prevent the double taxation of dividends. After the government stopped implementation of the imputation taxation system in 2018, this supporting measure should have been abolished as well. The government should not punish firms for setting aside capital for future expansion, but should allow firms more financial flexibility to plan upgrades and for other purposes, the association said.
In addition, the association reiterated its demand that the government lower the business tax on the financial industry to at least the 2 percent level implemented before 2014, saying the tax cut would yield cost savings and enhance competitiveness for local financial institutions.
This is not the first time corporate executives have addressed tax issues with high-ranking government officials face-to-face. At different times in the past few years, many executives had repeatedly called on policymakers to make Taiwan’s business environment more friendly, but their proposals often received lukewarm responses from the government, while experts and academics were skeptical.
However, as the national tax revenue continues to rise this year and since the government is likely to meet its tax revenue target for this year as early as this month, with a surplus revenue of at least NT$100 billion (US$3.08 billion) for the whole year based on the Ministry of Finance’s estimate, many executives wanted officials to take note of their plights as many businesses are facing multiple headwinds stemming from falling external demand, supply chain inventory adjustments, post-COVID-19 transformation, and macroeconomic and geopolitical challenges.
Most importantly, corporate executives saw the upcoming presidential and legislative elections as a window of opportunity, and they wanted to take advantage of the meeting with Executive Yuan officials to put forward their tax ideas. In addition, opinions expressed through industrial and commercial groups instead of by individuals tend not to be taken lightly by government officials.
Indeed, the tug-of-war between businesses and the government over tax issues has continued for years, and it is reasonable to see more corporate executives come forward to have their voices heard ahead of elections. To a certain extent, it also highlights the many blind spots of the government’s tax administration which demand improvement and refinement.
For instance, the national tax revenue exceeded the government’s budgetary targets for 12 of the past 16 years, with surpluses almost becoming the norm in recent years. Critics have blamed this on a structural inaccuracy in the government’s tax revenue forecasting model and the fiscal conservatism adopted by the tax administration. Yet what also deserves attention is how much of the surplus tax revenue comes from inappropriate tax categories or deficiencies in the current tax system.
While paying taxes is a basic obligation for all citizens and firms, what is a reasonable level of taxation and how should those taxes be collected? Since tax revenue is the most important source of the nation’s fiscal income, the tax administration should be serious about the persistent inaccuracies in revenue forecasts that are bound to affect policymakers’ planning, the government’s resource allocation and the nation’s long-term development.
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