OPINION: Fund Taiwan's Partial Basic Income Proposal with Tax Reforms

OPINION: Fund Taiwan's Partial Basic Income Proposal with Tax Reforms
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Can we fund a universal basic income policy by increasing some of the unusually low tax rates in Taiwan?

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Original article by UBI Taiwan

Foxconn Founder Terry Gou (郭台銘) previously made a grand promise during a political presentation: “From birth until the age of six, newborn babies will be fed by the state!”

Taiwan's low birthrate and aging population have evolved into a national security threat, according to former President Ma Ying-jeou (馬英九). Meanwhile, Gou's bold proposal to reduce young couples' heavy burden on raising children has sparked a heated debate.

What is Partial Basic Income?

Gou's proposal and UBI Taiwan’s interim "Partial Basic Income" policy happen to share the same idea, a focus on granting target groups basic income. For instance, if basic income is given to the elderly, then it is similar to the basic pension system proposed by the Awakening Foundation (婦女新知基金會), which suggests a minimum guaranteed pension of NT$8000 per year for the elderly. If given to the working class, then it would resemble the "State Support for Children" policy mentioned by Terry Guo.

However, the policy is under scrutiny, and one of the frequently asked questions is "where will the money come from?"

Huang Kuo-chang (黃國昌), a New Power Party (NPP) legislator, estimated the policy would require a yearly budget of NT$28.6 billion – approximately 12.5% of the government’s annual budget. He said the policy indeed touches on the predicaments a great deal of young people are currently facing, yet “the question is not whether it can be implemented, rather how we can implement it effectively.”

Taiwan has in fact long implemented a policy of reducing tax rates and simplifying administrative process. Compared to the United States – a long-time capitalist country – and even to Singapore – a country known for its free economy – Taiwan’s tax burden is relatively low. If it is truly necessary for the Taiwanese government to provide financial assistance in raising children, we think it would be best to locate financial resources through emphasizing tax justice and wealth redistribution.

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It is an irrefutable fact that Taiwanese taxes are comparatively low. We suggest that all political figures and people with political aspirations, regardless of their stance on population policy, consider the five taxation policies below.

1. Corporate Tax for Profit-Seeking Businesses

In 2010, Taiwan’s corporate tax was reduced from 25 percent to 17 percent, then adjusted again to 20 percent in 2019. However, in comparison to other nations’ corporate tax rate, Taiwan’s current 20-percent-rate is still rather low. In particular, the Statute for Industrial Innovation (產創條例) and the Return of Overseas Capital Act (境外資金匯回專法) and other tax concession bills have been passed one after another, thus giving corporations even more benefits in tax deductions.

Many think companies should take on greater responsibilities, and that the tax should therefore increase to the same level as before 2010.

2. Carbon and Energy Tax

Carbon tax targets expenses linked to the use of carbonic fuel. There are two purposes for this: first, to transfer the external cost of protecting the environment to the user, which means the user will have to pay for the cost of pollution; second, to urge factories to invest in anti-pollution technology by increasing the cost of discharging carbon emissions. In this way, we will boost the development of green industries.

Implementing carbon and energy tax could be remarkably effective in decreasing carbon emissions, in addition to bringing in considerable government revenue. As one scholar said, "Air pollution incurs societal costs associated with losses in agriculture, forestry, and fishery, as well as negative effects on the people’s health – and for these reasons, the pollution fees should be 100 times higher."

Furthermore, the intense climate change and adverse health effects brought by carbon emissions would severely impact and damage society. In this case, carbon and energy tax can act as a valid form of compensation – a way to give back to the people.

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3. Sales Tax (Consumption Tax)

When consumers spend in Taiwan, the government will collect 5 percent of the price of the goods as sales tax. The 5-percent sales tax does increase the cost of living for Taiwanese people. However, in comparison to other countries, Taiwan’s sales tax is quite low. European countries generally impose a 20-percent sales tax while Japan will be increasing its consumption tax to 10 percent in October 2019.

Academia Sinica’s 2014 Tax Reform Policy Proposal pointed out that the government can divide consumer products into two categories: general consumer goods and luxury goods. Different tax rates can be set for each category. By collecting a "luxury goods tax" and assuming it does not affect the consumption of the general public, the government can increase its revenue.

4. Estate and Gift Tax

Estate and gift tax is levied with a focus on the transference of wealth. It is commonly considered to be an effective means of preventing the inheritance of capital and social class. Before 2008, Taiwan's inheritance tax ranged from five to 50 percent. After 2008, the government reduced the tax rate substantially, bringing it down to only 10 percent. In 2017, it was again revised to a maximum marginal tax rate of 20 percent to support long-term care services.

In reality, the government grants people a fixed bracket for tax-free asset transfers each year. There is also a high threshold, below which tax will not actually be levied. Families with billions in assets are extremely rare in Taiwan, which implies that the estate and gift tax would only impact the ultra-wealthy; ordinary people will remain completely unaffected.

5. Property and Land Tax

According to Academia Sinica’s above-mentioned Tax Reform Policy Proposal, Taiwan’s revenue from property and land tax accounted for 0.88 percent of the national GDP, rather low compared to the Organization for Economic Cooperation and Development (OECD) countries, which have an average rate of 1.14 percent. The extremely low cost of possessing real estate in Taiwan is a phenomenon that has already caused an irreversible effect on housing market inflations.

In our opinion, the government should differentiate the tax rates for "owner-occupied residences" and "non-owner-occupied residences" such as investment properties. In particular, the minimum tax rate for non-owner-occupied residences should be increased to give a reasonable sense of risk and pressure to short-term and long-term property investors.

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Credit: Reuters / TPG Images
Motorists ride to work on a bridge during morning rush hour in Taipei, Taiwan.

As a member of this overworked island we call Taiwan, we can say the fruits of decades of economic development certainly have yet to benefit the countless laborers who made it all possible. Instead, we gained a delightful reputation: coming in third place for the longest working hours among OECD countries!

We believe that universal basic income (UBI) is the key to a stable life for the economically vulnerable and toiling laborers. Furthermore, it is a remedy for social security, economic development, impoverished youth, inequality, the aging population, unequal distribution of wealth, and development towards autonomous systems.

Former U.S. President Barack Obama once said, “Whether a universal income is the right model — is it gonna be accepted by a broad base of people? — that’s a debate that we’ll be having over the next 10 or 20 years.”

Good medicine tastes bitter, but we expect the Taiwanese government to shoulder this heavy responsibility and to keep up with the international progress and research on UBI, making its first step towards a genuinely forward-looking policy.


The original article was written in Chinese by UBI Taiwan, an advocacy to inspire the national discussion of universal basic income in Taiwan, also a member of the Basic Income Earth Network (BIEN).

TNL Editor: Daphne K. Lee (@thenewslensintl)

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