In the face of a media frenzy over the perceived hollowing of Taiwan's industrial base, government officials proposed new tax measures to boost investment by traditional industries yesterday.
Any new manufacturing investments in Taiwan by traditional industry players this year or next year would not be subject to a business tax for five years, according the a proposal put forth by the Council for Economic Planning and Development. The council is the government's most important economic policy development agency.
It said this tax incentive is similar to the deal offered to high-tech companies and pundits say it is intended to stop the flight of manufacturing jobs to China. Traditional industries in Taiwan, including steel and plastics, accounted for 26.4 percent of the nation's GDP last year, down from a peak of 39.4 percent in 1986.
The economic downturn last year sent investment to China rocketing as firms sought new ways to cut costs to remain competitive. Taiwanese firms look to China for low-cost land and labor, and the move across the Strait has left many people in Taiwan worried about the future.
Chinese-language media yesterday claimed the loss of industries has already led to a large decline in professional association memberships.
The report cited the Taiwan Garment Industry Association -- once responsible for the largest portion of Taiwan's exports -- as one example. The association, "saw its annual exports decline in value to just US$1 billion last year and its member companies plunged from more than 500 to under 300 in a decade."
One media watcher that asked to remain anonymous called the report "fear-mongering and scare tactics," pointing out that the issue of China investment has become overly politicized in Taiwan.
Many of Taiwan's textile makers shifted to lower-cost centers such as China in the late 80s in an effort to remain competitive. Textile mills in Taiwan make little sense, he said, when lower-cost labor can be found in places such as Vietnam, China and Cambodia.
Council officials believe the new business tax proposal would encourage manufacturers to remain in Taiwan instead of opting for China.
Without new investment in Taiwan, the government agency says Taiwan will not be able to achieve its growth targets of 2.7 percent GDP growth and a drop in unemployment from its current rate of 5.14 percent down to below 4.5 percent.
The council said it will take the proposal to the Cabinet before sending it to the Legislative Yuan for final approval.