I.The structure of administrative organization of the Taiwan Taxation system

System of administrative affairs

System of business supervision and conduct

Executive Yuan

Fukien Provincial Government

Kaohsiung / Taipei City Government

Ministry of Finance

Lienchiang County Government

Kinmen County Government

Finance Bureau, Kaohsiung City / Department of Finance, Taipei City Government

Financial Data Center

National Tax Administration of Southern / Central /Northern Taiwan Province

Taxation Agency

Kaohsiung / Taipei National Tax Administration

Directorate General of Customs

Training Institute, Ministry of Finance

Taxation and Tariff Committee

county/city Government

Lienchiang County Taxation Office

Kinmen County Taxation Office

Revenue Service Office, Kaohsiung City / Taipei Revenue Service

Branch

Customs Offices

Revenue Service Offices

Taxation Section

Branch

Service Office

Taxation Office

Branch

II. Current Tax System in Taiwan

The tax system is also known as the tax structure, which means a system of tax composed of several relevant components. For an individual tax item, the components contained in this item, such as the subject whom the tax is imposed on, tax rate, and method of imposition, will generate a tax law, which represents the system of such tax item. For example, the income tax system may be categorized into an income tax system or a consolidated income tax system. And business tax can be categorized into a sales tax system or a value-added tax system.

For the whole tax items of a country, all of different tax items form the entire tax system of the country. The fairness and reasonableness of the tax system of a country depends on the content of the structure existing in the entire tax system of the country, such as that whether the weight of central tax and local tax appropriately matches the function of each level of government, and whether the allocation of direct tax and indirect tax is in line with the distribution of National Income. Then whether there is repetition or impacts existing can be analyzed from the structure for further improvement. The current tax system in Taiwan is divided into two levels, which are national tax and Municipal tax, in accordance with Act Governing the Allocation of Government Revenues and Expenditures. The tax items of second-level government are shown as follows:

In respect to the different characteristics of the tax structure, it can be divided into direct tax and indirect tax. A direct tax is defined as the taxpayer and the person who pays the tax being the same one, which means that the taxpayer is unable to transfer the tax to any other person. In case the taxpayer is able to transfer the tax to other people after paying the tax, the tax is defined as an indirect tax. Generally speaking, the progressive tax rate is applied to direct tax. People with higher income and more wealth can afford more tax, and they will pay more tax, which is for the purpose of fairness and averaging social wealth. The proportional tax rate or fixed tax rate is commonly applied to indirect tax. In this case, the ability of affording tax may not be equivalent to the ability of paying tax. However, the indirect tax is usually concealed within consumption or prices, which makes the tax be paid unconsciously and taxpayers seldom feel any pain. Both direct tax and indirect tax have their own advantages. If the tax structure of a country can comply with its economic development stage and the distribution of National Income, the tax structure will be an excellent system. But in practice, except a tax which is not conscious in advance, taxpayers always try to evade or transfer the tax payable. Therefore, there are few taxes that can be fully transferred. It is only the issue of the level of difficulty to transfer tax. The classification of direct tax and indirect tax has been used for a long time and is continuously being used.

Under our current tax system, the characteristics of each tax item classified by the government are shown as follows

IV    The relation between taxation and finance

The generation of tax system can trace back to the establishment of a country. In order to constantly operate and carry out various public affairs, the country needs substantial fund support. The source of funds comes from tax revenue, utility revenue, revenue from government-owned property, monopoly revenue, revenue from government bonds and other public revenues. The tax revenue is the key and most stable source of funds. Therefore, modern countries are “taxation countries” in respect to the type of finance. A “tax country” is a term commonly used in finance. The meaning is that the revenue of finance mainly comes from tax revenue and tax is the core issue of financial problems. We know that a more modern government with more ability can do more things for the people. And in a more progressive economy and a more modern society, there are more things that the people require the government to do. The need that the people ask the government to do more things and to improve efficiency, the need of protection of life and property against external attack and internal disarrangement, the need for constant economic development to improve the living standard, the need of establishment of harbors, schools, roads, and parks, the need of environment protection, the need for social welfare as well as others are the causality that the country requires its people to pay tax according to applicable laws to support its finances to carry out public affairs.

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