On December 26, 1997 the legislature passed the so-called "two-in-one" tax reform bill on its third reading. It is hoped that these revisions to the tax structure, which become law on January 1, 1988, will stimulate the domestic economy.

The main thrust of the bill is to stop income being taxed twice, first from a company under the business tax and then from the shareholder under the personal income tax. In the past, if company income was first taxed at say 25% under the business tax, the remaining 75% given to shareholders would then be taxed as personal income according to the individual shareholder's tax bracket. In the future, the amount duplicated can be claimed as a deduction by the individual on his personal income tax form. When the "two-in-one" revisions go into effect, the individual shareholder will be spared having income taxed twice. And with companies' reserve surpluses becoming taxed (at a fixed rate of 10%), this will reduce the incentive for businesses to hold onto reserve surpluses so that shareholders can avoid paying tax, and will thus reduce the amount of national income made entirely untaxable.

Following on the example of such nations as England, Germany, Singapore and New Zealand, the ROC is the 22nd country to institute similar two-in-one tax revisions. The move represents a step forward in the direction of a modernized tax structure. Apart from eliminating income being taxed twice, it is even more important for fostering a fair tax environment. In one respect, it taxes business income largely according to the tax bracket of the individual shareholder; those whose tax brackets are below 25% could even have a tax refund. And after the revisions go into effect, the business tax will in effect be 0%, leveling the playing field. Industries that used to enjoy tax incentives, such as a tax-free first five years for companies in certain high-tech field, are complaining about losing them. The Minister of Finance, however, points out that becase these firms will not first hand over 25% of their income under the business tax, they will still enjoy a special status that reduces cash-flow pressures and interest burdens.

Minister of Finance Chiu Cheng-hsiung says the reforms will stimulate investment and consumer spending and raise domestic demand. When reserve surpluses are taxed as income at the minimum rate of 10%, it will spur companies to divide profits among shareholders or reinvest profits so as to avoid paying tax. From the individual tax payer's perspective, reducing the total amount taxed will also spur investment, savings and spending. If the economy booms as a result, tax revenue will actually increase.

The two-in-one tax revisions were one of the promises made by President Lee Teng-hui in his inaugural address the year before last. Its quick passage, however, should not obscure that the "Revisions to Promote Productivity" and the "Revisions for the Development of Small and Medium-Sized Firms" should also be adopted. In the short run, it is likely that eliminating double taxation will result in a loss of tax revenue, and the national treasury may meet with lean times. What's more, those who own no shares in businesses and simply take home monthly paychecks will enjoy few benefits from these revisions. Hence, this year the Ministry of Finance should turn its focus to eliminating the exemption under which military personnel and teachers pay no taxes, creating tax deductions that will encourage shareholders to invest, and giving more benefits to middle-income tax payers in the interest of fairness.