Vincent Tseng
In the last decade, political democratization ad-vanced rapidly in Taiwan. As the system of local self-governance warranted by the Constitution is being implemented, the traditional fiscal system whereby the central government controls and allocates budgets and subsidies could no longer satisfy the needs of local developments.
In fact, as long ago as 1981 the Council of Grand Justices of the Judicial Yuan stated in Constitu-tional Interpretation No. 277 that the central government should enact without delay guide-lines for local tax legislation, as referred to in Article 7 of the Law Governing the Allocation of Government Revenues and Expenditures, to give local governments a basis for exercising their legislative powers for self-governance in matters of local fiscal policy and local taxation under Articles 109 and 110 of the Constitution. Article 67 of the Law on Local Government Systems, enacted in 1999, also provides that the scope and collection of local taxes should comply with the provisions of the guidelines for local tax legisla-tion.
On 19 November 2002, the Legislative Yuan finally adopted the Guidelines for Local Tax Legislation (GLTL). In the future, special mu-nicipalities, counties, cities, urban townships and rural townships may all decide autonomously to collect new taxes or to increase the rates at which existing taxes are levied. In matters of local taxation, the GLTL provisions take precedence over those of the Tax Collection Law and other laws. But when enacting local tax provisions, local legislatures naturally may still not override the provisions of legislation enacted by higher-level local governments or the central government.
In line with the provisions of the Law Governing the Allocation of Government Revenues and Expenditures and the Law on Local Government Systems, the GLTL divide local taxes into the three categories of special taxes, temporary taxes and supplementary taxes. Special taxes are new taxes levied to meet the general fiscal needs of self-governance. Temporary taxes are taxes raised to meet specific needs, and may only be used for the purposes for which they are levied. Supplementary taxes are additional levies ap-pended to existing national taxes, collected on local governments' behalf by the national tax authorities.
In the future, local governments will be able to raise all kinds of taxes, as long as the relevant legislation is duly passed by their local councils. For instance, according to media reports, Taoyuan County is considering imposing an airport tax, Taichung County is planning to im-pose a carbon tax on fossil-fuel-fired power sta-tions and steelworks within its jurisdiction, Nantou County is investigating the possibility of levying a gravel tax on gravel extraction zones, and Hsinchu County wishes to impose a noise tax on military airports. Most of these are taxes on activities that have some negative environ-mental effect, so that localities may gain some degree of compensation or payback.
However, local governments' tax raising powers are not unlimited. The GLTL not only impose time limits of two to four years on local taxes, but they also provide that no taxes may be levied on transactions outside the jurisdiction in question, on natural resources or mineral products that are distributed outside the jurisdiction, or on public utilities with operations that cross jurisdictional boundaries; and they forbid taxes that would be detrimental to the overall national interest, or to the public interest of other localities. Therefore, taxes such as water reservoir taxes, petroleum products taxes or nuclear waste taxes, or taxes on public utilities such as Taiwan Power Company, are not permitted. Also, supplementary taxes may not exceed 30% of the national tax rate, and increases in the rates of local taxes are limited to 30% of the rate originally legislated for. Local governments must also report their legislation to their supervisory agency, the Ministry of Finance, and the Directorate-General of Budget, Ac-counting and Statistics, Executive Yuan. Therefore, there is no room for illegal or abusive taxation.
The concept of fiscal autonomy behind local taxation implies that localities enjoy a partial power of taxation relinquished by the central government, and that the introduction of local taxes should be accompanied by a reduction in central government taxes. However, in order to stimulate the economy the central government is currently offering many tax concessions, and is suffering a serious shortfall in tax revenues. Thus there has been no sign of central govern-ment tax cuts in response to the entry into force of the GLTL. As for the GLTL's impact at the local level, fiscal autonomy goes hand in hand with political responsibility: popularly elected local officials are unlikely to take the political risk of introducing substantial new taxes, so the proliferation of taxes that some people have warned against should not be a serious worry.
