Taiwan (Formosa) and Penghu (the Pescadores) were ceded by China to Japan in 1895. Sukeki Kabayama, the first Japanese Governor-General, first regulated the customs duties of the customs houses at Tamsui, Keelung, Anping and Kaohsiung. Then the land tax, business tax, stamp tax, all kinds of consumption taxes, commodity tax, toll tax, property tax and income tax were introduced one by one. As Governors-General succeeded one another taxes became heavier and heavier.
With the retrocession of Taiwan to China in 1945, a plan of reform of the tax system was adopted by the Taiwan Provincial Government. The primary measures planned under this scheme were as follows:
1. Abolition of unsound taxes. There were 52 taxes and surtaxes in Taiwan which were not easy to justify and the total sum of their collection was insignificant. The abolition of these taxes was decided upon by the Provincial Government.
2. Revision of tax laws, and regulations. The remaining taxes were adjusted to conform with the system of taxation of the Republic of China. The income tax, the temporary excess profit tax, the business tax, the inheritance tax, sugar consumption tax the commodity tax, the transit tax, and the cold beverage tax were allowed to, continue with revised rates.
3. Changes in the system of collection. Since the retrocession of Taiwan, both the land tax and the stamp tax have been given more efficient machinery for collection. For instance, the land tax was changed to be payable in kind instead or in cash with the purpose of adjusting the food supply and stabilizing the price of foodstuffs. The rates for the stamp tax have been revised according to the fiscal regulations of the Republic of China.
4. Continuance of certain taxes. After the retrocession of Taiwan, the Central Government of the Republic of China approved the principle that certain taxes in Taiwan were to be levied as usual, namely, the nine tax and the corporation tax. The retention of the existing rates of taxation for these taxes was decided upon because they were even lower than those of the Central Government. In order to encourage the " development of the mining industry and commerce in Taiwan, the Central Government decided to permit the maintenance of the lower tax rates.
5. Revision of local duties. The system of levying the local, duties in Taiwan has been revised since its retrocession. Such duties as the boat tax, the cart tax, the automobile tax, the sedan chair tax, the prostitute tax, the servant tax, the special income tax, the slaughter tax, and the dog tax were suspended; but the household tax, the special household tax, the road tax, and the real property increment tax have been temporarily preserved. Many taxes such as the slaughter-house tax, the business license tax, the entertainment tax, etc., have been assigned to local governments.
In the preliminary, revision of 1945, more than twenty kinds of taxes were allowed to continue. On account of the over-abundance in the variety of taxes and the complexities of tax laws and in spite of the fact that tax rates have been lowered, they were still too high when considered in the light of the actual local economy and the burden borne by the individual tax-payers. In order to correct this situation, the "Emergency Regulations Governing Unified Taxation in Taiwan Province" were promulgated by the Legislative Yuan and put into effect on January 1, 1951. The outstanding features of the new tax system are as follows:
1. Establishment of a tax system with direct taxes as its basis. Most countries are taking direct taxes as the basis of their tax systems. Taiwan levied the income tax and the inheritance tax. The household. tax in Taiwan, which has had a long historic background, is based upon both the income from property and the income of members of the family and bears some, resemblance to the Cumulative Income Tax. The unified tax law combines the income tax with the household tax, using the household tax as the foundation of the new tax system in order to spread the incidence of taxation as extensively as possible. When the income of an individual subject to the household tax exceeds the taxable base of the Cumulative Income Tax, the tax on the excess portion shall be computed at the rates for the Cumulative Income Tax. The system of taxation with the direct tax as its basis is thus established.
2. Simplification of tax items. As stated above, after the preliminary adjustments, more than twenty items of taxes still remained. With a view to insuring a sufficient revenue and facilitating the tax payment, steps have been taken to simplify these tax items. Besides the customs duties and the salt tax collected directly by the Central Government, and the tobacco and wine excises collected through monopoly sale, there are only eleven items which have been preserved, namely, the income tax, the inheritance tax, the commodity tax, the stamp tax, the land tax, the business tax, the house tax, the slaughter tax, the entertainment tax, the license tax and the household tax. Two surtaxes remained: the port construction surtax and the defense surtax.
3. Division of the scope of various taxes. The relative fields of the various taxes were revised and simplified. For instance, the stamp tax, originally divided into five categories totaling 36 items all with different rates, was too complicated. The stamp tax has been realigned into four categories--documents of business transactions, title deeds and property certificates, personal documents, and permits--with unified rates for each category to facilitate collection. The business tax was formerly divided into wholesale and retail business taxes. The difficulty of making a clear distinction between the two often caused disputes, and has been now abandoned.
4. Adjustment of tax scales and rates. In order to strengthen tax collection the so-called light tax and heavy penalty theory has been applied. Tax rates are lowered and the differences between the graduated scales of rates of each tax item are revised. Rates of the inheritance tax, the commodity tax, and the stamp tax have been lowered to such an extent that they have almost become “procedural charges.” In order to relieve the burden of salaried workers, taxes on salaries and service returns may be deducted from the household tax. With lowered tax rates and the rational distribution of the incidence of taxation, the new tax system now has an active social significance.
5. Consolidation of tax collection. As a result of the latest tax reform, forced contributions have been prohibited, definite dates for collection have been· fixed, the tax rates have been lowered, and penalties for violations have been unified. Moreover, all central and local taxes, which formerly had been collected by separate central, provincial and district government agencies, are now put under a unified collection agency to a void duplication and confusion.
6. Provision of facilities for tax-payers. Tax items, the starting point of taxable bases, tax rates, rates of the defense surtax, the declaration and payment date, and regulations on tax deductions are all shown in the appendices of the Emergency Regulations Governing Unified Taxation in Taiwan Province. The fixing of the collection dates has the effect of not only coordinating the different taxes, but also of adapting their collection to local economic conditions and to natural seasonal fluctuations. Owing to the wide publicity given to the regulations on taxation, conspicuous achievements have been made in increasing the efficiency of tax administration.
7. Strict control of tax sources. The organization of industry and commerce in Taiwan is still far from sound. Samples of the false declaration of business volumes and forgeries of accounts were not lacking. These malpractices made it difficult for collection agencies to check and make correct estimates and assessments.
The system of "Unified Invoices'" for commodities has been initiated in order to correct this situation. Encouragement of tax payment has been made by lowering the rates and by active programs of public-education. At the same time, the accounting and auditing systems have been strictly enforced to make them serve as bases for the levying of income tax on various commercial and industrial enterprises. General investigations on household tax sources, houses, industry and commerce have been conducted; and various reference data on taxation have been regularly accumulated to prevent false declarations and to control the sources of taxation.
After the completion of the taxation reform program in Taiwan in, 1951, many types of abuses have been corrected. The current system of taxation in Taiwan may be seen in the following two tables:
Despite the simplification of tax items, the lowering of tax rates, and the raising of the taxable point, tax revenues have been on the increase. The main reasons which caused this are the stability of economic conditions and the readiness of the people to support the Government. After the currency reform of 1949, tax revenue in that year reached 131 million new Taiwan dollars, 767 million new Taiwan dollars in 1950. In 1951, it increased to more than 1,440 million new Taiwan dollars, and in 1952, it increased to more than 2,220 millions new Taiwan dollars. Tax revenues of Taiwan in the past seven years are listed as follows:
It is noted that the fluctuation of the proportion between the various taxes and the total annual revenue in the past seven years was rather large. Tariff revenue in 1946 was only 2 % of the total annual tax revenue. It increased to 5.66 % in the next year, 20.16 % in 1949, and 29.10 % in 1950. Now it is nearly one-third of the total tax revenue. Tobacco and wine excises through monopoly sale was 14.46 % of the total annual tax revenue in 1946, rose to 17.80% in 1949, and 21.64 % in 1951.
Income tax was only 1.94 % in 1946. It increased in 1950 to 5.68 %, and in 1952 to. 9.93 %. Commodity tax was 2.93 % in 1946, 8.55 % in the next year, then dropped due to the simplification of the tax items. It is around 5 % at present. Business tax was as low as only 0.20 % in 1946, 5.01 % in 1948, 5.96 % in 1949. It is around 4% now.
Land tax was major item in tax, revenue during the years immediately following the retrocession of Taiwan. It was 65.71 % in 1946, 40.21 % in 1947, 34.05 % in 1948, 23.17% in 1949, 10.52% in 1950, 8.06 % in 1951, and further dropped to 4.21 % in 1952.
It can be seen that the nucleus of taxation during the stage immediately after the retrocession consisted of the land tax and indirect taxes. As a consequence of the development of industry and commerce in recent years, tariff revenue, income tax, business tax, and tobacco and wine excises have shown rapid growths. Taxation in Taiwan, therefore, has been improved from year to year since the retrocession so that it is on its way to changing to direct taxes as the nucleus of the system.
Generally speaking, taxes levied on consumption commodities, on land and on agricultural products all have a direct influence upon the rural population. As the economic foundation of Taiwan is agricultural and the tax sources on general consumption commodities and staple agricultural products are abundant, there are in recent years sign of their further annual increase.
From January to October, 1952, the production of taxable commodities is roughly as follows: Sugar 523,781,382, kg., cement 346,246 kg., cotton yarn and artificial cotton yarn 10,951,862 kg., woollen thread 232,397 kg., safety matches 138,914 bamboo baskets, cold drinks 2,110,778 dozen bottles. Among these 6 taxablecommodities, sugar is largely exported (more than 93 %), the other 5 items are for home consumption. The major part of salt is exported, so the burden of sugar and salt taxes does not rest on the people in the rural areas. The increase in the staple agricultural products in the past few years is shown in the following table
In 1951, agricultural income was the largest amounting to more than NT$771,600,000 for the whole fiscal year while commercial income was only NT$316,800,000, less than half of the value of agricultural income.
Income from salary and remuneration was NT$270,000,000. Income from wages amounted to NT$180,000,000. Incomes from industry, mining, fishery and forestry were all less than one hundred million new Taiwan dollars. It can be seen that tax imposed upon agricultural income is a matter of concern to the economic development of Taiwan.
In the whole system of taxation of Taiwan, taxes imposed upon land and agricultural products are chiefly the commodity tax and the land tax. Since the larger part of the salt produced is for export, the annual salt tax revenue at its highest was only 6% of total tax revenue of the year. Normally, it was no more than 2%. The tendency is towards decrease from year to year. The salt tax was only 0.61% of the total tax revenue in 1952 which tends to show that farmers have not been saddled with too heavy a burden. Although the slaughter-house tax is the main part of the tax revenue of local governments, it makes up only less than 5% of the total tax revenue. Among the taxes imposed upon the rural taxpayers, the commodity taxes (except sugar tax) and land tax are the heavier ones in comparison. As mentioned before; the percentage of commodity taxes in the total revenue has steadily decreased in recent years, with 8.55% in 1947 to 6.24% in 1949, 5.06 % in 1951 to 4.04 % in 1952. The percentage of land tax decreased even more: sharply. From 65.71% in 1946, it decreased to 40.21 % in 1947,23.17 % in 1949, 8.06 % in 1951, and 4.21% in 1952. This phenomenon is clear proof of' the changing pattern of Taiwan's financial and economic policies as well as the tax system.
In a joint investigation of the general living conditions of 301 rural families in Taiwan made in 1950 by the Department of Agriculture and Forestry, Taiwan Provincial Government, and the Joint Commission on Rural Reconstruction, the average tax load carried by the rural people of Taiwan was less than 6.6 % of their gross income.
The average income of landed farmers from the output per hectare is NT$8,239.00 of which 89 % is agricultural income and 11 % is derived from other miscellaneous income, while the total necessary expense is NT$542 which is 6.6 % of the gross income. Within this total, NT$4.30 or 79 % goes to taxes and duties paid to the government, NT$112 or 21 % of the total load is accounted for by irrigation fees and membership fee of the farmers' association. As for the tenant farmers, the average annual income of one hectare cultivated land is NT$7,968 of which 90 % is derived from agriculture and 10 % from other incomes. Their expense is NT$ 162 or 2.1 % of the total income which is even lower than that of the landed farmers. Within this sum of NT$162, 41% goes to irrigation fees and membership fee of the farmer's association, 59% goes to taxes paid to the government.
In any country, the development of the national economy and the improvement of the living standard of the people revolve partially upon the rational distribution of the incidence of taxation. For purposes of the study of the incidence of taxation on the people and the various kinds of enterprises, the financial authorities of Taiwan had collected and analyzed data accumulated in both urban and rural areas, as well as the actual amount of taxes paid by public and private industrial, mining and commercial enterprises. As has been shown, the rates of land tax and tax of agricultural, products did not fluctuate in the last few years and the tax load of the farmers has remained constant. Owing to the development of industry and commerce and achievements gained through more efficient administration of taxation in recent years, tax revenue (except land tax) has gained rapidly, thus causing the tax burden of the farmers to decrease relatively and the tax system to advance towards a reasonable standard. For instance, in 1946, the average annual tax load of each farming household was NT$1,006, while the average annual tax load of other householders was NT$468. In other words, the tax load of the farmers was 1.3 times greater than that of people of other economic groups. Up to 1951, the average load of the laud tax borne by each farmer was NT$62, while the average tax load of borne by people of other economic groups was NT$242. In other words, the burden of and tax of the farmer was only 25% of the tax burden of the people of other economic groups. It is 8% less than the 32% of 1937 in comparison. It can, thus be seen that the tax burden of the farming people has shown a constant tendency to 'decrease year by year. This tendency will be maintained in 1953. Next year, a reasonable ratio of incidence of taxes for the farming population is expected to be reached when the percentage of the relative incidence of taxation in rural areas will level off.
The current reform of Taiwan's system of taxation has as its central idea the encouragement of industrial reconstruction and the consolidation of the foundations of our national economy. In the industrial and commercial fields, we have efficiency of general administration, a unified system of commodity invoices and collection through the auditing of books. Other features of the tax system which tend to aid industrial development are the lowering of the tax rate on brown sugar, the rewarding of cane sugar producers, the cutting down of house tax on factories and the exemption of foreign merchants from paying the defense surtax. Meanwhile, on the basis of the principle of "nourishing industry through agriculture and developing agriculture through industry," a concrete program for the industrialization of Taiwan has been drawn up by the Government in cooperation with the China Mission, U. S. Foreign Operations Administration. On June 25, 1952, an agreement was signed between China and the U. S. to ensure the Investment of private American capital. This serves to attract as well as to protect the in vestment of private American capital in Taiwan. Late in 1952, two new measures governing the investment of capital in Taiwan from overseas Chinese and foreign sources were announced by the Executive Yuan. These were the "Measures Encouraging the Investment of Overseas Chinese in New Productive Enterprises" and the "Regulations Governing Imports Purchased with Private Foreign Exchange for Establishing New Productive Enterprises in Taiwan."
The tariff policy of an economically advanced country cannot be discussed on the same plane with that of an economically under-developed country. To afford some protection to its infant industries, an economically under-developed country will have to impose higher import duties. The tariff rates for different kinds of imported materials are being formulated by our Central Government. Meanwhile, new regulations governing import and export materials, are being set up in order to meet the requirement of the anti-Communist war as well as to protect the development of domestic infant industries. Due to the complexity of the tariff regulations, automatic readjustment can hardly be expected. The important thing is to improve the system step by step in order to furnish minimum protection to the new industries.
In order to offer greater attraction to foreign capital, the Government has been studying the, revision of the Income Tax Law and other tax regulations concerning industry and commerce with the purpose of facilitating the investment of private foreign capital and capital of overseas Chinese.
Immediately after the retrocession of Taiwan, the incidence of taxation fell mostly on land owners and tillers. Traditionally, that was what was to be expected. In the change of emphasis in economic development, especially after the completion of the 37.5% and Rent Reform and the "Land-to-the-Tiller Program," industrial development becomes the order of the day. In line with this shift of emphasis in economic development and also as a preparation for it, the tax system of the Republic of China has been overhauled so that the main weight of tax incidence may fall on urban as against rural populations an d industrial enterprises as against land-owners and farmers.
As a result of this change in emphasis, industrial and commercial taxes increased year by year. For instance, the percentage in the total amount of tax revenue collected in rural areas dropped from 29% in 1949 to 13 % in 1951; that of the revenue collected in urban areas rose from 22% in 1949 to 28% in 1951. The percentage in the total annual tax revenue of industrial enterprises and commercial establishments also rose from 13% in 1949 to 21% in 1951.
The shifting of, the burden of the greater proportion of taxes from the farm to urban population, the encouragement of in vestment in new industrial projects by overseas Chinese and the revision of our laws regarding both the investment of private foreign industrial capital and foreign exchange control are expected to provide a favorable background for the speedy realization of Premier Chen Cheng's program for Taiwan's industrial development.
Rules For The Governor
The way to govern a principality capable of mustering one thousand chariots in war is threefold: to be cautious in the conduct of public affairs and truthful, to cut down all unnecessary expenditure and love the people, and to draft the latter for service only when they are free from agricultural work.
From The Confucian Analects.