Thu, Jul 10, 2003 - Page 10 News List

Government must make up shortfalls


The Cabinet yesterday passed a resolution stipulating that government agencies need to finance future tax-cut plans if they will result in more than NT$50 million in lost tax revenue per year.

The measure, proposed by the Ministry of Finance in early April, aims to stem a flurry of tax breaks that is depleting state coffers.

Under the new measure, which was announced yesterday, the Ministry of Finance must review tax-break proposals from government institutions and find other financial sources to make up for the shortfall.

Tax-cut plans which result in lost revenue of less than NT$50 million are not subjected to the rule, the Cabinet said in a statement.

Analysts yesterday criticized the plan saying it will be easy to circumvent.

"Government departments that come up with tax-cut plans will find ways to evade the rules," said Yophy Huang (黃耀輝), a researcher at Chung Hua Institute for Economic Research (中經院).

One trick that may be employed, Huang said, is to divide a larger tax-break plan into several parts, each totaling less than NT$50 million.

Huang further pointed out that the measure is not new, as the Law Governing the Allocation of Government Revenues and Expenditures (財政收支劃分法) stipulates that the government should make up for tax losses before implementing any cuts.

"The law has not been complied with for many years, so why should we expect that the announcement made yesterday will make any difference?" Huang said.

Another tax expert said that the various laws governing tax-breaks are strewn with loopholes.

"Tax-cut regulations should contain a sunset clause stipulating when, or in what situation, the tax break will be revoked," said Lee Hsien-feng (李顯峰), associate professor of economics at National Taiwan University.

"Although the government now realizes this point, they will hardly cancel ongoing tax-cut plans due to political, mostly electoral considerations," Lee said.

Recent tax breaks include investment incentives to companies utilizing industrial parks and the reduction of the real estate transaction tax.

One example of how tax-break projects erode the national treasury is the Statute for Upgrading Industries (促進產業升級條例). The government lost NT$830 billion in tax revenue in 2001 due to tax cuts provided by the statute, according to the ministry's statistics.

Meanwhile two government branches yesterday said they would comply with the measure, but have no specific ideas about how to fund their future tax-cut plans yet.

"Maybe we will use surplus from state-run companies under our ministry to make up for the shortfall," Secretary-General Yeh Huey-ching (葉惠青) of the Ministry of Economic Affairs said yesterday.

The ministry presides over many state-owned companies, including Taiwan Sugar Corp (Taisugar, 台糖), Taiwan Power Co (Taipower, 台電), Chinese Petroleum Corp (中油) and Taiwan Salt Industrial Corp (台鹽).

Secretary-General Chen Hung-yi (陳鴻益) of the Ministry of the Interior said they would evaluate how to finance future tax-break projects when they arise.

The total tax revenue for the first six months amonted to NT$683.1 billion, up NT$3.2 billion or 0.5 percent from a year earlier, the finance ministry reported yesterday.

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