Personal Income Tax Reform and Tax Burden Distribution Analysis in Taiwan
Author: Keh-nan Sun, Shi-wan Lou
Abstract / Chinese PDF Download
Abstract In Taiwan, the tax deductions and allowances saved following the expiry of the Statute for Upgrading Industries on December 31, 2009 have generated additional revenues for reforming the personal income tax system. Aside from the effects on business operations and industrial development, the impact on household tax-burden and income distribution requires careful consideration in the context of Taiwan’s worsening income inequality.
Based on personal income tax return data collected by the Ministry of Finance, our analysis leads to the following results. First, according to our progressive tax system, lowering the personal income tax rates tends to benefit the rich more than the poor and is thus harmful to household tax equity. Second, since the rates for the special deductions in regard to education and the physically and mentally challenged are high for the high income group, increasing their deduction rates will hurt overall tax equity. Third, raising the standard deduction can benefit the middle and lower income groups more, by not only improving the tax-burden distribution but also minimizing the loss in tax revenues. Finally, since dividend income is highly concentrated in the top decile, if the tax treatment were modified and the income deduction method adopted, income distribution would improve significantly and tax revenue would increase.