Taipei, Taiwan — In a significant move that will alter the financial landscape for Taiwan’s local governments, the Legislative Yuan has approved amendments to the Act Governing the Allocation of Government Revenues and Expenditures, enabling local governments to secure an additional NT$375.3 billion (approximately US$11.5 billion) in funding. This new revenue distribution measure marks the first such revision in over 25 years.
A Shift in Funding Allocation
The new amendments, passed late Friday night after intense debates between lawmakers from Taiwan’s ruling and opposition parties, seek to shift the balance of funding away from the central government and towards local governments. The opposition Kuomintang (KMT), which proposed most of the changes, believes that the updated revenue distribution will allow local authorities to better fund their public works projects. The Taiwan People’s Party (TPP) has also voiced support for the changes, arguing that local governments will now have more resources to boost infrastructure development.
On the other hand, lawmakers from the ruling Democratic Progressive Party (DPP) raised concerns that the new law could strain the central government’s budget, leaving less money for national projects and welfare programs.
Breakdown of the New Amendments
Under the current allocation system, the central government receives 75 percent of the total national tax revenue, while local governments are allocated the remaining 25 percent. The new amendments, which restore the previous 60-40 revenue split between the central and local governments before 1999, will drastically shift the funding model.
Key changes include:
- Income Tax Revenue: Local governments will now receive 11 percent of income tax revenue, a notable increase from the current 10 percent.
- Business Tax Revenue: After accounting for uniform invoice lottery winners, business tax revenue will be fully allocated to local governments, as opposed to the previous 40 percent after deductions.
- Land Value Increment Tax: Local governments will now receive 100 percent of the land value increment tax, a significant change from the current rule where only 20 percent of this tax revenue is allocated to them.
The KMT and TPP legislators argue that these adjustments will help improve the financial conditions of local governments, creating a more balanced distribution of resources between urban and rural areas.
Opposition Concerns and Government Response
Despite the support from opposition parties, the ruling DPP has expressed concerns that the new law could negatively impact Taiwan’s overall fiscal health. DPP Secretary-General Wu Szu-yao criticized the amendments, stating that they could undermine fiscal discipline and fairness in revenue allocation. She added that the changes would ultimately harm the central government’s ability to fund important national projects.
The Ministry of Finance (MOF) also voiced strong objections to the amendments, warning that the additional NT$375.3 billion allocated to local governments could create severe budgetary challenges. The MOF stated that the new funding distribution might hinder the implementation of national policies in areas such as economic development, national defense, and social welfare.
Table: New Revenue Allocation Breakdown
| Revenue Type | Previous Allocation | New Allocation |
|---|---|---|
| Income Tax Revenue | 10% to local governments | 11% to local governments |
| Business Tax Revenue | 40% to local governments | 100% to local governments |
| Land Value Increment Tax | 20% to local governments | 100% to local governments |
Impact on Local Development and Public Works
The passage of the amendments is expected to have significant implications for local development and public works. Local governments will have access to increased funding for projects such as infrastructure development, urban renewal, and social welfare programs. This shift could especially benefit smaller cities and rural areas, where funding for such projects has traditionally been limited.
While the opposition parties see the revised law as a step toward greater equity, the DPP’s concerns highlight the potential risks to Taiwan’s overall fiscal stability. As the new allocation rules begin to take effect, it will be crucial to monitor their impact on Taiwan’s economic and fiscal health.
FAQs
Q1: What is the main purpose of the new revenue allocation law?
A1: The new law aims to increase the share of tax revenue allocated to local governments, allowing them to access more funds for public works and infrastructure development.
Q2: How will the new allocation affect local governments?
A2: Local governments will receive more funding, particularly from income and business tax revenues, and will gain full access to the land value increment tax.
Q3: What concerns have been raised about the new law?
A3: The DPP and Ministry of Finance have expressed concerns that the new revenue allocation will strain the central government’s budget, impacting national policies and programs.
Q4: How long has it been since Taiwan last revised its revenue allocation law?
A4: The last revision of the Act Governing the Allocation of Government Revenues and Expenditures was made more than 25 years ago.
Q5: How will this new law affect the balance between urban and rural areas?
A5: The KMT and TPP believe that the new law will help balance resource distribution between urban and rural areas, providing more financial support to local governments.
