“Tax expenditure” means government spending in the form of a reduction or exemption of tax revenue (or giving tax relief) to specific individuals, groups, or events through tax laws or other decrees. This results in revenue loss and tax base erosion.
In Taiwan, there were 130 tax expenditure items in income tax, 30 items in value-added and non-value-added business tax, 18 items in commodity tax, 2 items in tobacco and alcohol tax, 27 items in estate and gift tax, as well as 6 items in securities transaction tax and futures transaction tax, as of the end of April 2023. The MOF has estimated the amounts of these items for 2024:
1. From the aspect of individual income tax regimes, the three largest items are (1) the premiums paid by employers for the benefit of employees insured under the labor insurance, national health insurance or civil servants’ insurance programs not deemed to be salary income (NT$33.2 billion); (2) the tax exemption for retirement pay (NT$19.3 billion).; and (3) Special deduction for the disabled (NT$17.0 billion).
2. As for corporate income tax regimes, the three largest items are; (1) the tax credit for company expenditure on technological innovation and purchase of new machinery or equipment for its own use(NT$27.7 billion); (2) the tax exemption for income from offshore banking branches (NT$26.0 billion); and (3) the tax credit for company expenditure on innovative R&D (NT$22.8 billion).
3. As for value-added and non-value-added business tax regimes, the three largest items are (1) the tax exemption for medical services, medicines, ward lodging, and meals provided by hospitals, clinics, and sanitariums (NT$35.0 billion); (2) the tax exemption for feed and unprocessed raw agricultural, forestry, fishing and livestock products, etc. (NT$17.2 billion); and (3) the tax exemption for the education services offered by schools, kindergartens, and other educational and cultural institutions including cultural services offered under government’s consignment (NT$8.8 billion).
4. As for commodity tax regimes, the three largest items are (1) the tax exemption for replacement of used passenger sedan, truck, or dual-purpose vehicle (NT$8.2 billion); (2) the tax exemption for new refrigerators, new air conditioners, and new dehumidifiers (NT$3.8 billion); and (3) the tax exemption for completely electric-operated vehicles (NT$3.7 billion).
5. As for estate and gift tax regimes, the three largest items are (1) the estate tax exemption for land reserved for public facilities inherited by the heir(s) (NT$3.1 billion); (2) the gift tax exemption for land reserved for public facilities transferred as a gift (NT$1.9 billion) ; and (3) the gift tax exemption for property donated to private incorporated educational, cultural, public welfare, charitable or religious organizations, or ancestor worshipping entities that meet the criteria prescribed by the Executive Yuan (NT$1.4 billion).
6. As for securities transaction tax regimes, the two largest items are (1) the tax reduction for the stock day-trading transaction (NT$50.9 billion); and (2) the tax exemption for corporate bonds and finance bonds (NT$18.4 billion).
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