A proposal floated Thursday to impose a "national security" tax on Taiwanese investment in China was sharply rebuffed by the outgoing head of economic planning as "an idea suitable for classroom use only."
Chen Shih-meng (陳師孟), incoming Central Bank (央行) deputy governer and Taiwan University professor, on Thursday suggested that a national security duty (國家安全捐) could be implemented if direct transportation and trade links are established.
In justifying the proposal, Chen said Taiwanese investment in China could pose a threat to national security, and that businesses operating there should contribute to the nation's defense budget.
In addition, Chen said the new administration could levy a tax on cross-strait freight. The funds would be used for local construction projects and national security.
Currently, direct investment in China is subject to regulatory review, though affiliated units of Taiwanese companies avoid this scrutiny.
But this is the first time anyone has proposed a special tax on Taiwanese investment in China -- raising eyebrows among officials and academics alike, who say the proposal wouldn't work at all.
"Chen's idea is only suitable as an exercise in the classroom," said Schive Chi (
Another official appeared to agree with Schive in principle, but saw implementation as the greatest hurdle blocking the proposal.
"It is really creative," a senior Ministry of Finance (
According to Taiwan's Income Tax Law, any income by Taiwan nationals in China must be included in their annual income tax filings. However, since there is no tax information exchange across the strait, it is extremely difficult for the Tax Bureau (
In order to collect the information, the official said, the finance ministry requested background information from the Ministry of Economic Affairs (經濟部) three years ago and interviewed local firms with China operations.
As a result, the ministry learned that the number of businesses which operate in China far exceed the official number.
Further research revealed three out of four businesses in China are operating at a loss.
In addition, the official said, if the national security tax was imposed, it may actually encourage Taiwan businesses to avoid registering with the government at all.
"The whole issue will require further consideration by the new administration," the official said.
Banking industry pundit Norman Yin (殷乃平) was less optimistic.
"Chen's idea will simply not work at all," said Yin, a professor at National Chengchi University. "In practice, large Taiwan businesses use paper companies registered in a third country and use that front company's identity to invest in China. For smaller businesses, the lack of operational information will make collecting the duty almost impossible for Taiwan's tax agency."
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