The second sentence of Article 7 of the Division of Financial Revenue and Expenditure Act, which stipulates that the general tax principles of provinces, municipalities and counties (cities and bureaus) under the direct governance of the Executive Yuan shall be established by the central government as the basis of tax legislation of provinces and counties, is enacted in accordance with Article 107, Subparagraph 7 of the Constitution for the separation of national, provincial, and county tax and to meet the principle of taxation-by-law and is not contrary to the Constitution.  Therefore, in order to enable the local governments to exercise the power of legislation as authorized by Article 109, Paragraph 1, Subparagraph 7 and Article 110, Paragraph 1, Subparagraph 6 of the Constitution, the central government shall, for tax allocated to local governments, enact general tax principles for local governments or establish general tax principles in the various tax laws applicable to local governments in accordance with the provisions of the Division of Financial Revenue and Expenditure Act referred to in the above.  Currently there are no general tax principles for local governments nor do the current tax laws provide general tax principles applicable to local governments.  Such laws shall be enacted as soon as possible. However, before the enactment of such laws, local taxation shall be implemented according to the relevant central government tax laws. As for the division of revenue and expenditure between the central and local governments, the central government shall adjust such division from time to time according to the factual situation so as to meet the spirit of the Constitution with due consideration of the central government.

       Article 7 of the Division of Financial Revenue and Expenditure Act stipulates that “the legislation of the provincial and county (city and bureau) taxes shall be proposed only when it is expressly provided in the Act, and the central government shall establish general tax principles as the legislative basis of the local governments.” The second part of the above quoted provision is based on Article 107, Paragraph 7 of the Constitution to implement the separation of national, provincial, and county tax and to meet the principle of taxation-by-law and is not contrary to the Constitution.The provisions of Article 109, Paragraph 1, Subparagraph 7 and Article 110, Paragraph 1, Subparagraph 6, which stipulate that the local governments shall have the power of legislation and taxation of the provincial and county tax means the provincial and county taxes that have been reasonably allocated to the local governments according to the laws made by the central government.  Therefore, in order to enable the local government to exercise the power of tax legislation authorized by the Constitution, the central government shall enact general tax principles for local taxes, or establish general tax principles in the various tax laws applicable to local government in accordance with the Division of Revenue and Expenditure Act referred to in the above.  Currently, there are no general tax principles nor do the current tax laws provide general tax principles applicable to local governments.  Such laws shall be enacted as soon as possible. However, before the enactment of local tax laws, the relevant provisions regarding local tax as provided in the tax laws of the central government shall continue to be valid and shall be enforced accordingly.   As for the allocations of revenue and expenditure, the central government shall adjust them from time to time according to the factual situation of economic development and the sources of tax. Such allocations should comply with the constitutional spirit of financial balance of the central and local governments. Furthermore, Paragraphs 2 and 3 of Article 12 of the Division of Financial Revenue and Expenditure Act, which provide for the centralized collection and allocation of business tax and stamp duty, are in conformity with the provision of Article 147 of the Constitution, which advocates balanced local economic development, and therefore are not contrary to the Constitution. This has already been interpreted by this Court in Interpretation No. 234.

*Translated by David Yang and Jane Lai of Baker&Mckenzie Law Offices, Taipei