Oftentimes, the orders are given in the morning and the taxes must be ready in the evening. Those who are lucky to have some surplus crops are forced to sell them at half price. For families with no remaining grain yield, they have to borrow with double interest. It is common for farmers to sell their land, their houses, and even their children to pay debts. However, wealthy businessmen reap huge profits through hoarding and speculation.
Even those owning small stores are able to live a much better life than farmers. Rich merchants do not need to work hard in the rice fields and it is not necessary for their female relatives to raise silkworms or weave cloth. They wear gorgeous clothes and eat good food ... —from the Lun Kui Su Shu, Treatise on the Importance of Farming.
In this memorial presented to Han Dynasty Emperor Wenti in 168 B.C., the renowned writer and political commentator Chao Tsuo, appealed to the emperor to pay particular attention to the overwhelming woes of farmers. It is said that after reading the admonition, the emperor immediately made a declaration to his subjects that praised the agricultural tradition and its importance to the state. Of even greater practical value to farmers themselves, however, was his edict later the same year to reduce agricultural land taxes and, the following year, to exempt farmers completely from tax burdens.
Throughout Chinese history, financial strength and military power were the two most important underpinnings for the existence of a state or dynasty. Just as armies brought might, taxes brought solvency. The people of China have rarely experienced a time when taxes were not a fact of life, and the burden was usually a heavy one. Sources both historical and literary report sad tales of the sufferings caused by taxes imposed upon people already in dire straits.
Although legend has it that the Chinese tax system began during the reigning years of the legendary Yellow Emperor, it was not until the Hsia Dynasty (c. 21st-16th Century B.C.) that tax collection appeared in its embryonic form when Yu, the reputed founder of the dynasty, first laid down rules for tribute and taxes
The Yu Kung chapter of the Shang Shu, China's oldest known text on history and geography, states that "The land tax is collected according to the harvest from one's own agricultural land; tributes are imposed on products from land other than agricultural." Even the classical philosopher Mencius spoke of taxes, referring to the methods employed in ancient times: "During the Hsia Dynasty, a man with 50 mu of land should pay tribute from five mu. By the time of the Shang Dynasty [c. 16th-11th Century B.C.], the state adopted the ching tien [nine-square] system. A 630-mu plot was divided into nine portions like the character 井, with the eight outlying portions separately cultivated and owned by eight families, which jointly cultivated the central portion for the state."
Mencius, speaking in a practical vein, was outlining a system that would both support the state as well as protect the farmers from exploitation. The nine-square system, considered to be the first type of agricultural land tax in Chinese history, thus received powerful philosophical support. The agricultural land tax, which was both a property tax and a direct tax, became the major source of tax revenue down to the present day. In Taiwan, it was abolished only in 1982.
Besides the agricultural land tax, salt and poll taxes also constituted a major income for successive Chinese dynasties. A systematic collection of a tax on salt began during the Warring States Period (475-221 B.C.). Kuan Chung (? -645 B.C.), prime minister of the State of Chi, advocated the monopoly on the salt business because it was easier to control and the item was a necessary commodity for all people. It therefore became a state-run enterprise and a major source of revenue for the state. The tradition of raising government revenues through monopoly control has been practiced throughout Chinese history, and is seen in one modern transformation in contemporary Taiwan: the Taiwan Tobacco & Wine Monopoly Bureau, which provides healthy sums to the island's governmental operations.
From the Hsia Dynasty to the Shang Dynasty, agricultural land tax was directly paid with the crops harvested from the land. But by the Chou Dynasty (c. 11th Century - 256 B.C.), tax began to be collected through currency. But whatever the historical period or method of collection, people could not escape the tax man. It was never a question of being required to pay-only how much. During the Warring States Period, for example, when seven feudal states were struggling for power or survival, the people suffered from extraordinarily heavy tax burdens. At this time, the rate of agricultural land taxes was much higher than the 10 percent common during previous dynasties.
In 221 B.C., the Chin Dynasty (221-207 B.C.) swallowed up the other six states, unifying China for the first time. But it also became an authoritarian empire—and one deeply attentive to tax collection. The dynasty played an important role in unifying old systems and establishing new ones. The tax system was for the first time centralized, giving the central government total power over collecting various taxes and dominating revenues. Tax officials were appointed by the central government, and during most of its short 14 years of existence, the dynasty encouraged farming but restrained the development of trade. Businessmen faced even higher taxes than farmers. But in the dynasty's last three years, when the son of the First Emperor became the ruler, not only were people forced to pay extortive levies and miscellaneous added taxes, the whole tax system fell into disorder, indicating that the rise and fall of dynasties often could be traced to revenue power as much as military might.
The Chinese tax system became even more complicated during the Han Dynasty, which replaced the Chin. Categories of taxation increased to five: agricultural land taxes, poll taxes, business taxes, customs duties, and miscellaneous taxes. These five brought positive results and became the norm for the tax systems of succeeding dynasties.
The contribution of the Tang Dynasty (618-907) to the Chinese tax system was its creation of twice-a-year collection of land taxes, in June and November. This system was followed by the Sung, Yuan, Ming, and Ching Dynasties. The Tang Dynasty rulers were also responsible for collecting the first customs duties, perhaps a natural decision to make given the dynasty's thriving commercial activities on land and sea.
Although the Sung Dynasty (960-1279), like its predecessors, relied heavily on tax collections from land, salt, and iron for its major revenues, its monopoly policy on the salt and iron business was a failure and finally led to financial collapse. But the dynasty won the support of businessmen by reducing their previously heavy tax burdens. In fact, the more positive orientation toward business as a recognized career pursuit brought about the establishment of a much sounder business tax system. It was copied by following dynasties.
Each dynasty in fact sought to refine the tax system. While the rulers of the Mongol Yuan Dynasty (1271-1368) adopted the Chinese system instead of developing one for themselves, they were the first to establish formal offices for auditing and levying taxes.
The Chinese Ming Dynasty contributed to refining tax squeeze by establishing the yi tiao pien tax system, considered to be more equitable than earlier systems. This combined agricultural land tax, corvee, and tributes into one category, and taxes were collected based upon land ownership.
The Ching Dynasty (1644-1911) experienced drastic changes in politics, economy, and finance, due to rapid growth of population and pressures from outside its borders. Court officials such as Chang Chih-tung, war minister and governor of several provinces, and Sheng Hsuan-huai (1844-1916), minister of communications, advocated the modernization of China. They made suggestions to renovate the Ching tax system by following examples found in Western countries. One of the proposals made at this time was enthusiastically embraced by no one: a personal income tax. It was never put into effect, but other proposals for tax revenue adjustments were adopted in the system established during the Republican period.
The income tax has become a major financial resource for countries throughout the world, but it was not until 1936 that the Republic of China first collected taxes of this sort. Even then, before 1943, income tax collection was based on business profits, salaries, and savings from securities. After a tax renovation committee was set up in 1950, refinement of taxation plans has become an important focus of government attention. Major goals for local tax renovation, as in Western countries, fall in the areas of simplifying tax schedules, adjusting tax rates, improving auditing and levying procedures, and unifying regulations for punishing tax evasion.
As Taiwan began its rapid agricultural and industrial development in the 1960s, it became especially urgent for the government to acquire sufficient revenues for necessary improvements of the island's infrastructure, especially in the areas of communication, transportation, education, and academic research. Prior to this time, local revenues had come primarily from indirect taxes. The first significant tax reform did not come until 1968.
Dr. Liu Ta-chung, the father of modern tax reform in Taiwan (at right), briefs high-ranking government officials in 1969 on computerization of taxation.
Liu Ta-chung (1914-1975), an economics professor at Cornell University, was invited to return to Taiwan and be responsible for tax reform. In two years a tax data center was set up, and for the first time in Chinese history tax collection was computerized. A tax administration auditing system was also established to prevent serious tax evasion and to enhance the fairness of the taxation system.
The most important area of the reform was the over-all increase of the individual income tax rates and the setting of standard deductions, which led to the increase of the proportion of direct taxation. The reform committee also revised the Statute of Investment Encouragement, which had considerable positive impact on the rapid industrial development on the island.
In 1986, when the U.S. Congress passed a tax reform bill considered a "tax revolution" by President Reagan, tax reform was underway in Taiwan as well. The Ministry of Finance decided to lower business income taxes from 30 percent to 25 percent, reduce the 15 brackets of individual income tax rate to 13, and cut the top rate of individual income tax from 60 percent to 50 percent. The policy led to an annual loss of NT$7 billion in government revenues.
Fairness of taxation has always been a controversial issue, no matter what the country or what the time. Currently, 65 percent of the individual income tax in Taiwan comes from wage earners. And a great majority of them apparently pay all they owe. Nevertheless, high income earners such as accountants, physicians, lawyers, architects, and entrepreneurs benefit substantially from tax shelters. [To encourage filing honest tax returns, each year the Ministry of Finance publicly commends more than a dozen individuals or companies who have honestly paid their taxes.] Double-wage couples also complain about being required to file a joint tax return, especially since individual income tax is a type of progressive tax, making married couples pay more tax than if they filed separate tax returns.
Another serious problem in the ROC tax structure is tax erosion. The salaries of military personnel, of primary and junior high school teachers (public and private), retirement pay and pensions, and bank interest up to NT$360,000 are all exempted from taxation.
Sales taxes, especially those collected from stores depending upon cash register sales, have added substantially to domestic tax revenues.
It has now been two decades since the last reform of tax administration and structure. At the same time, the island has experienced unprecedented social, economic, and political changes. The Ministry of Finance therefore felt it urgent to organize another temporary institution to be responsible for the next stage of tax renovation. The Tax Reform Committee was thus set up in July 1987 to undertake the task over a two-year period. With 44 researchers and 18 committee members, it has so far completed about half its work. Only four of the committee members are current Finance Ministry officials, while the rest are respected experts in the field.
"Our tax structure should be simpler," admits Chen Ting-an, head of the committee and professor at National Chengchi University. As the United States reduced its 15 rates in 1986 to 5 in 1987 and to 2 in 1988, and as the Japanese Diet passed in November a bill turning 12 tax brackets into 5, the ROC's 13 individual tax rates [ranging from 6 to 50 percent] have been criticized constantly by local experts.
Although it may seem that average wage earners in Taiwan pay less tax (17 percent of the GNP) than those in advanced Western countries, there is a drawback: "On the one hand people here want to pay lower taxes, but on the other hand they want to have better social welfare programs," Chen says. A familiar contradiction has therefore arisen, common both in Taiwan and elsewhere. How can demands for governmental programs and services be met while keeping taxation at levels low enough to satisfy the people? Simplification and adjustment of the tax structure are but a part of the solution. It is safe to predict that further refinements and new directions in taxation will be adopted—just as in dynasties past—to separate people from their money. It is a constant of the universe.