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Early in 1914, the law of income tax proclaimed in writing that “the government salary of military personnel” and “emolument of teachers” were exempt, where was the beginning of our country “income tax exemption for military personnel and teachers”. With such particular historic background, the policy of “income tax exemption for military personnel and teachers” have gone through many discussions, the views of supporter were that the contribution of military and teachers were kind of sacrifice, so the exemption were kind of compensation and encouragement. In the opposite, however, some think that it should be treated on the basis of taxes justice, and paying taxes was one of a national’s responsibilities, and did not think that the contribution of military and teachers exceed the contribution of agriculture, industry and commercial. All the way, there cannot find a good and effective common consensus between the supporters and opposition, so this policy has been put off till now.
In 2005, the Executive Yuan goes through the revised draft of “the income tax” to cancel the exemption for military personnel and teachers of under junior high school. It estimates approximately that will increase 1.5 billion tax revenue by carrying out this law, but it will also impact for economic and welfare.
For this reason, this research use CGE (Computable General Equilibrium) model, brings into the income revenue and expenditure equations, and designs different welfare indices to build a financial and tax analysis model to reflect the real economic situation of our country, and to analysis the effects and impact of cancelling “the income tax exemption for military personnel and teachers”, and also taken as reference for policy makers in regulation and setting economic development plans.
According to theory and design of model, we can get the four economic meanings about cancelling the income tax exemption for military personnel and teachers in this text.
(1) Household consumption sector and income distribution: The most influential is cancelling the exemption to median and high income stratum, but it can cancel the “Upside-down subsidy” situation. From the point view of welfare, it can improve the low income stratum and the social welfare utility in the long and short term, and the GINI coefficient decrease 0.49364% in the short term, decrease 0.49353% in the long term, so we can get the result that the policy can helps to re-allocate the property.
(2) Macroeconomic Index: Through the economic system linking, the policy can stimulate export and import amounts, but the net import amounts become decline. The aggregate price level decrease in the long and short term, the real GDP increase in opposition.
(3) Government taxes: The policy can make the aggregate tax and indirect tax grain growth, but the tariff and indirect tax of investment are decline, so we know cancelling the income tax exemption for military personnel and teachers can increase the government taxes.
(4)Other economic index: It brings a negative influence in average salary in the short term to cancelling the income tax exemption for military personnel and teachers, but decrease 0.000402% in the long term, and the consumer price index decline in the long and short term. About the aggregate payments to capital is the same with aggregate real investment expenditure, aggregate real investment expenditure and aggregate payments to capital have no influence in the short term, but both are decline in the long term. The complex primitive input is increase 0.002171% in the short term, but decrease 0.000090% in the long term.
It is concluded that this thesis use the Computable General Equilibrium model establish the suitable income welfare index to analysis the economic and welfare situation. Finally, the simulation shows the income welfare is more effect than the economic, and the policy can expanding the tax base, increase government tax, and improve the fairness and efficiency.
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