The Business IncomeTax in Taiwan
CommentsMotohiro Sato1

First of all…
Hitotsubashi University has organized series ofinternational symposium since 2000 on various
policy issues of Asian countries including tax
policy and reform.
We have some idea of what business taxes inAsia are.
=> What are special about Taiwan business tax?
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What key features of Taiwan BIT?
Taiwan business income tax = Profit
seeking Enterprise Income Tax (PEIT)
PEIT is levied not only on corporatecompany but also other forms of businessorganization such as sole proprietorship(self-employed) and partnership.

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What key features of Taiwan BIT?
Tax structure is moderately progressive.
Tax rate= 0% for taxable income <TWD50,000=15 % for TWD50,000<taxable income<TWD100,000=25% for taxable income > TWD100,000.

4What key features of Taiwan BIT?
Imputation credit system applied to avoid
double taxation on dividend=> Integration of PEIT and PIT.
10% of surtax levied on undistributed
earnings.
=> Maximum tax rate equal to 35%(?) but
less than top tax PIT rate of 40%.
5What key features of Taiwan BIT?
Two major tax incentives(a) The Statute for Encouragement ofInvestment- expired in 1999(b) The Statute for Up grating Industries- effective since 1991 and expired in2009.
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Is Taiwan BIT important revenue
source ?
2004

CIT/GDP

Taiwan

2.18%

CIT/Tax%
17.81%

Korea

3.5

14.3

Japan

3.8

14.2

Source: Tsui (2007)
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What is revenue loss due to tax
incentives?
40

38.45

38.36

35
30
25
20

19.54

21.77

1510

18.51

18.23
11.51

7.98

5019972000% of PEIT

2004

2006

% of PEIE+PIT
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What are issues?
It seems that revenue loss due to the tax
incentives is considerable
Any evidence that the tax incentives contributes
to economic development and to employment/
job creation?
What are policy options after The Statute for Up
grating Industries is expired?
=> Tax rate cut with tax base broadening?
9Business income tax inglobalization era
A small country assumption may apply toTaiwan economy (with some remarks)..
In globalization, Taiwan economy will beconfronted with capital and profit mobility.
Can Business income tax survive?
What is option of tax reform in Taiwan?
10Who collects tax?

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Tax Incidence in Small Open
EconomyRate of return
Return on domestic immobile factors
such as labor decreases

Investment

B
CIT Rate

Gross Rate of returnA
Net Rate of return

Capital outflow

Capital0K1

K012

CIT Ratio to GDP
4.5

4.3

4

3.7 3.8 3.7

3.5
3
2.5

3.8
3.3

2.8

3.1

3.4

3.4

3.2

2.6

2
1.5
1
0.5
0

1995

2000
OECD

2003
EU15

2004

Japan
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Source Auerbach (2006)

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Empirical Study of Tax Competition（DS-DI/GDP)

With capital being
more mobile,countries compete
one other to attract
capital/ investment.
⇒Tax competition leads
to the race to thebottom.
1965 ~2000
OECD

Source：WINNER（2005）

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Is PEIT too high?
3530

3330

30
25

25

25
20

20

17.5

15
1050

Japan

Korea

China

Indonesia Hong Kong Singapore

TaiwanCIT rate

Source: Japan MOF
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What is future of Taiwan businesstax?
How does Taiwan tax system competewith other countries?
- Another tax concession and benefit?
- Low tax rate and tax base broadening?
Big thinking, what is fundamental tax
reform?
- Flat tax- Dual income tax
Develop other taxes, away from businesstax?

17What can we learn?
What are common challenge of businesstax reform in the globalization economy
between Japan and Taiwan?
What are unique challenge for Taiwan?

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