Taiwan Economy

Taiwan Economy

Subchapters:

  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax system

Basic data

Even during the global coronavirus pandemic, Taiwan is showing unprecedented economic growth, 5.7% in 2021, and growth of 3.2% is calculated for 2022, or 2.3% for 2023. The growth potential lies mainly in the orientation of the Taiwanese economy towards consumer electronics and ICT in general and increased global demand in this sector. Unemployment hovered at 4.4% in 2021 and inflation rose to 2%. GDP per capita rose to 64,240 USD. The current account of the country’s balance of payments has been in surplus for a long time. In terms of trade statistics, the value of Taiwan’s exports in 2021 saw a significant jump and increased to 446 billion USD. Imports also increased compared to the previous year and amounted to USD 381 billion at the end of the year. Overall, Taiwan’s foreign trade will grow to 827 billion USD in 2021. The foreign trade balance ended in 2021 with a surplus of USD 6billion. The total external debt amounted to USD 189.8 billion in 2020, the ratio of external debt to repayment was 1.9%.

According to cheeroutdoor.com, Taiwan’s economy is one of the world’s largest suppliers of electronic components such as computer memory chips and semiconductors, as well as computers and optoelectronics, including flat-panel displays. Taiwan manufactures electronic parts and components into final products, which are subsequently “branded” and sold by foreign brands. A lot of Taiwanese goods are further processed in China or Southeast Asia and then sold in Japan, the US or the EU. More than 80% of Taiwan’s exports are intermediate products. Taiwan’s role in world trade is particularly evident in the information and communication technology (ICT) sector. Taiwan is home to a high-end semiconductor industry, enabling it to supply key components and assemble final consumer electronics. Taiwan’s economy is also actively involved in the development of cloud technologies and software services. As far as imports are concerned, the main items are machinery and machinery, electrical equipment and amounts thereof, sound recording and reproducing apparatus, etc.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 3 3.1 5.7 3.2 2.3
GDP/population (USD/PPP) 55,690.50 58,420.50 64,240.00 68,590.00 72,060.0
Inflation (%) 0.6 -0.2 2 2.4 0.8
Unemployment (%) 3.7 3.9 4.4 4.2 4
Export of goods (billion USD) 304.6 319 446.5 488.1 502.4
Import of goods (billion USD) 284.9 285.8 381.2 420.5 441.2
Trade Balance (Billion USD) 19.7 33.2 65.3 67.6 61.2
Industrial production (% change) -0.4 7.1 12.9 5.6 3.6
Population (millions) 23.6 23.6 23.4 23.5 23.5
Competitiveness 16/63 XI.63 VIII.64 ON ON
OECD export risk 01.VII 01.VII 01.VII ON ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -1.6
Public debt (% of GDP) 28.3
Current account balance (billion USD) 110.3
Taxes 2022
AFTER ON
F.O ON
VAT 5%

A budget of $80.75 billion was approved for 2022. Compared to 2021, the amount increased by 5.4%.

The largest part of the budget is allocated in the social expenditure chapter, more than 26% of the total budget, followed by education, culture and science expenditure, which amounts to over 20%. There was also a significant increase in the defense category (15%). In response to the global spread of the coronavirus, the Taiwanese administration has also introduced extensive measures to support the economy and maintain economic stability, such as subsidies for affected businesses, the introduction of stimulus measures, the acceleration of investment and public procurement to increase domestic demand, support for the return of Taiwanese investors, and the removal of administrative obstacles. The deadline for income tax payments will be postponed by up to one year. The Ministries of Transport (MOTC), Health (MOHW), Finance (MOF), Economy (MOEA) are planning further steps which include, among others, compensation for hotels, accommodation facilities, theme parks and airlines. The goal is to redirect the tourist trips of Taiwanese people from abroad to the country and revive the demand for services that have been affected by the drop in tourists from other countries. Other measures for businesses and individuals include a reduction in interest rates for mortgages up to NTD 10 million and a reduction in corporate income tax, in some cases up to 100 percent. The Central Bank will further allocate funds for loans to small and medium-sized enterprises. It can be assumed that depending on the development of the situation, further reliefs will be added. Other measures for businesses and individuals include a reduction in interest rates for mortgages up to NTD 10 million and a reduction in corporate income tax, in some cases up to 100 percent. The Central Bank will further allocate funds for loans to small and medium-sized enterprises. It can be assumed that depending on the development of the situation, further reliefs will be added. Other measures for businesses and individuals include a reduction in interest rates for mortgages up to NTD 10 million and a reduction in corporate income tax, in some cases up to 100 percent. The Central Bank will further allocate funds for loans to small and medium-sized enterprises. It can be assumed that depending on the development of the situation, further reliefs will be added.

The balance of payments current account asset reached USD 110.3 billion. Public debt is 28.3% of GDP. The fiscal deficit should reach USD 6.83 billion. The ratio of external debt to repayment is 2.09%. The country’s external debt reached USD 21billion last year, which is USD 2billion more than in 2010.

Banking system

The Central Bank of Taiwan is the main regulator of the banking sector. It issues currency, manages foreign exchange reserves, processes treasury receipts and disbursements, sets interest policy and oversees the operations of local financial institutions.

In addition to the central bank, there are also 39 domestic banks, 23 credit unions, 283 agricultural credit unions and 28 fishing credit unions. These banks, cooperatives and credit unions played a pivotal role in the development of the financial system in Taiwan. Foreign banking institutions are well established in the local financial market and enjoy similar treatment to domestic banks. Many foreign institutions offer a wide range of banking services and thus successfully compete with domestic institutions. The most prominent Taiwanese banks include Bank of Taiwan, Lank Bank of Taiwan, Taiwan Cooperative Bank, First Commercial Bank, Hua Nan Commercial Bank, Chang Hwa Commercial Bank and Shanghai Commercial & Savings Bank. The Export-Import Bank, which is managed by the Department of Finance and focuses on trade support, has a specific position.

A current list of accredited Taiwanese banking institutions is available on the website of the Central Bank of Taiwan, see https://www.cbc.gov.tw/tw/mp-1.html

The interest rate has been decreasing for the past few years, with a slight increase this year to 1.135%.

Tax system

The Department of Finance is the entity responsible for the administration and collection of taxes. Taxation occurs at the national and local government levels. Duties are collected by the Directorate General of Customs, other taxes are collected by the local tax administration depending on the region or city (National Taxation Bureau, NTA). There are currently 5 NTA regional offices. City or district tax authorities are subordinate units of the city or district administration and their task is to collect municipal taxes. The Income Tax Act is the main law governing taxes on personal income and business profits. The Taiwanese tax system underwent an extensive reform in 2018, which greatly simplified the entire system and at the same time introduced some innovations, especially in the area of ​​the digital economy.

Personal income tax is progressive. Depending on the amount of income, 5 rates are set, namely 5, 12, 20, 30, and 40%. The calculation is further different if the person is a tax resident in Taiwan including immigrants staying in Taiwan for more than 183 days in a year. Corporate income tax is set at 20%. Income up to NTD 120,000 is tax exempt. Value added tax is relatively low at 5%. For cross-border sales, the seller is required to register if the income exceeds NTD 480,000.

Overview of taxes collected at the central level:

  • Customs Duties
  • Profit-seeking Enterprise Income Tax 20%
  • Individual Income Tax (Individual Income Tax) 5 – 40%
  • Estate and Gift Tax
  • Commodity Tax
  • Securities Transaction Tax
  • Tax on future transactions (Futures Transaction Tax)
  • Business Tax
  • Tobacco and Alcohol Tax
  • Specifically Selected Goods and Services Tax

More information can be found on the website of the National Taxation Bureau.

Taiwan Economy