I am doing some research on “Desired Tax Changes” in Taiwan, and would be interested in intelligent comments from other members of the community.
Although, ideally, (from a consumer’s point of view) all taxes in Taiwan would be eliminated, I don’t think that is practical. However, I would propose that the following three types of taxes be eliminated (1) gift taxes, (2) inheritance taxes, and (3) yin hua taxes.
I believe that the foreign business groups have also recommended the elimination of some taxes, does anyone have recent details?
Also, what about “capital gains taxes” … ? Is there such a category in Taiwan? How should it be dealt with?
Any serious discussion of all related issues is welcome.
With respect to gift an inheritance tax, an alternative could be to raise the exemption level much higher. I don’t recall the exact number but it is very low compared to the exemption level in other countries. I think it was something like TW$5m exemption level for inheritance, which is less than an average house would go for in Taipei (though there’s special exemptions for real estate). In contrast, the US the exemption is currently US$2m and is being raised to $3.5m in 2009, so nobody should get hit with it just because they own an average house some place with high real estate costs like the San Francisco area. In addition the ROC inheritance tax gives a higher exemption level to spouses, but the US allows tax-free inheritance for spouses with no limit.
The biggest help for foreign residents would be reform of the 183 day rule for resident tax treatment. Currently someone who arrives in Taiwan at the end of July in 2006 will have to have withholding done at the non-resident tax rate until the end of June 2007 because the 183 days must be in one calendar year. For the 2007 tax year he’d be assessed at the resident rate, but he’d need to wait until late 2008 to get a refund for the overpaid amount. And he’ll have to pay the non-resident rate for all of 2006.
I believe this should be revised so that anyone who stays over 183 days in any 365 day period will then qualify for the non-resident tax rate. If that were changed then in our example above the new resident would pay non-resident withholding through the end of January 2007, and be able to file his 2006 taxes at the resident tax rate if he has attained 183 out of 365 by the time taxes are filed. By the time tax time arrives most people who are resident would have qualified under this rule. The exceptions would be those who arrived late in the year or who had traveled in and out of Taiwan frequently. Those cases could be handled by allowing a revised tax filing to be done once they qualify.
And the last suggestion which isn’t that big a deal to me is to lower the top tax bracket rate a bit. 40% is a bit high compared to the lower tax brackets. A top rate of 30% would be more reasonable. I’d actually prefer a flat non-progressive tax rate with a big standard deduction/exemption, but that might not go over very well with fans of redistribution of income.