The Taiwan government offers various tax incentives to achieve its economic policy goals. However, in the long run, these incentives have seriously eroded tax base and led to unfair tax consequences. To improve the fiscal budget and uphold tax equity, the government enacted the Income Basic Tax Act (IBTA, hereafter), which includes certain specific tax-exempt income items in the tax base. According to the Act, beginning year 2006, a 10 percent minimum tax will be levied on businesses with specific tax-exempt income. This study investigates the impact of IBAT on implicit tax. The results indicate that prior to IBTA implementation, tax-exempt income derived from securities transactions is negatively associated to risk-unadjusted pretax returns on common stocks, consistent with the implicit tax theory. Additionally, the magnitude of implicit tax on tax-exempt income derived from securities transactions is reduced after IBTA implementation.