The Ministry of Finance has no plan to raise the value-added tax (VAT) from the current 5 percent to 6 percent or 7 percent for now, said a business association official after a meeting with Minister of Finance Lin Chuan (
The tax increase plan was brought to the public's attention Wednesday when Lin fielded questions by lawmakers at the Legislative Yuan.
During a legislative session, Lin was grilled by lawmakers on ways to improve the government's deficits. Lin responded that the ministry may consider raising the VAT 1 or 2 percentage points.
Lin's remarks provoked concern among local business leaders and consumers, as the price of commodities would go up if the new tax is levied, said George Lin (林添貴), deputy secretary-general of the Chinese National Association of Industry and Commerce (CNAIC, 工商協進會).
Companies are also concerned the proposed new tax would impact their cash flow.
"Lin assured us that the plan is still under evaluation, and will definitely not be put into practice yet," Lin said."However, the minister admitted that raising the value-added tax is the fastest method of enriching the nation's coffers."
According to the ministry's estimates, the government will pocket NT$20 billion for every 1 percentage point the value-added tax is raised.
Taiwan has in recent years suffered from declining tax revenues due to a slow economy. The Directorate-General of Budget, Accounting and Statistics in September forecast the central government would have a budget deficit of NT$3.43 trillion as of the end of next year.
Responding to domestic pressure, the government offered tax incentives for new investments, which however led to fewer tax revenues for the government to collect.
The ministry therefore set up a taxation reform committee last year in a bid to increase government income by adjusting tax measures. Starting this July, the Cabinet also demanded government agencies find other means of providing revenue to finance their tax-cut plans if lost income from taxes exceeded NT$50 million per year.
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