The Constitution provides in Article 19: “The people shall have the duty to pay taxes as prescribed by law” and in Article 7 “All citizens of the Republic of China, irrespective of sex, religion, race, class, or party affiliation, shall be equal before the law.” Where reasonable differential prescriptions are made by the state with respect to the imposition, reduction or exemption of taxes based on legally required elements or ordinances issued by administrative agencies upon specific and unequivocal authorization of law, with legitimate reasons, such prescriptions are not contrary to the principle of taxation by law and the principle of equality.
The Act of Encouragement of Investment (automatically annulled as of December 31, 1990, upon expiration of its period of enforcement) was enacted for the purpose of encouraging investments to accelerate the economic development of the country through tax reduction and exemption and other incentive measures. Article 27 of the Act provided that “to promote the development of the capital market, the Executive Yuan may, taking into account the needs for economic development and capital formation and the condition of the securities market, decide to suspend temporarily the levying in whole or in part of the securities transactions tax for marketable securities and to suspend temporarily the levying in whole or in part of the income tax for securities transactions otherwise payable by persons not in the business of marketable securities trading; however, no deduction may be allowed from the amount of income for any loss suffered during such period of suspension by reason of securities transactions.” Based upon the authorization of the Act of Encouragement of Investment and upon Executive Yuan approval per letter Tai(77) Tsai-Tze No. 28616 dated October 20, 1988, the Ministry of Finance issued on October 29, 1988, the Precautionary Matters on the Imposition of Income Tax on Revenue from Securities Transactions per directive Tai-Tsai-Shue-Tze No. 770665140 which provides in Article 5 that “the imposition of income tax on revenue earned by individuals from sale of listed stocks acquired after January 1, 1989, will continue to be suspended for two years from January 1, 1989 till December 31, 1990, if the gross annual sales amount does not exceed ten million New Taiwan dollars; however, any loss that may have been incurred during such period as a result of securities transactions is not deductible from the amount of income from transactions in property.” The provision is intended to accord individuals selling securities tax benefits within a defined limit for their income from transactions for the purpose of promoting the development of the capital market and is consistent with the legislative purpose of the above Act in granting tax reduction and exemption only to the persons not in the business of marketable securities trading, and is therefore not in conflict with the principle of taxation by law as embodied in Article 19 of the Constitution.
It must be noted that the principle of equality laid down by Article 7 of the Constitution is not an absolute and inflexible equality in form. Rather, it means to guarantee people an equal standing in reality before the law. While taxpayers should, under the principle of equality in taxation, pay taxes which they are supposed to pay according to their actual taxpaying ability, it is not forbidden by Article 7 of the Constitution to specify, with reasonable cause, differential treatments by way of exceptions or special provisions within the scope of discretion authorized by law to grant taxpayers of a particular class tax benefits in the form of tax reduction or exemption in order to promote the public interest. To the extent that Clause 5 of the above-cited Precautionary Matters provides for the suspension of the imposition of the income tax for securities transactions up to a specified amount only, the tax relief so allowed represents a reasonable differential measure taken by an administrative agency under authorization of law based upon its professional judgment of the interim needs for economic development and the actual condition of the capital market for the purpose of promoting the public interest, and is thus consistent with the principle of equality embodied in Article 7 of the Constitution.
*Translated by Raymond T. Chu.