Steering a safe passage for the nation's economy

Taipei Times: As a tax guru, the public has been expecting you to succeed in formulating a fair tax system to improve the nation's financial difficulty without putting too much pressure on taxpayers. But many have said that the Ministry of Finance hasn't achieved a lot yet. What is holding you back?

Lin Chuan (林全): Before I took office, the ministry's tax-reform committee had been discussing plans for over a year and was on the verge of reaching conclusions. After coming to office, I had no intentions of flip-flopping the consensus, but to finalize it and kick-start implementation. But reforms take a long time to realize. I disagree with critics who say that we haven't made any headway.

Take the value-added tax for example, it's a big step forward that representatives from all sectors at the committee finally agree that the tax rate should be increased by 2 percent [to 7 percent]. The ministry also took the initiative in devising mechanisms to review the tax system every two years and to review the feasibility of any future tax-cut policies that will harm the nation's coffers, which have been as much as we can do in such a short time.

No tax-reform plans can be completely implemented in a short time.

TT: But take the land-value incremental tax for example, the ministry failed to rally support behind its proposal to reduce the top rate from 60 percent to 40 percent while allowing the legislature to get its way and halve the tax for another one year, which will further attribute to the nation's tax-income shortage. How do you explain the blunder?

Lin: Our long-term goal is to permanently cut the tax rates by an average of 20 percent from 60, 50 and 40 percent to 40, 30 and 20 percent. But the tax has been cut by half for the past two years. It will be disturbing if the tax rates were resumed to their original high levels for this year before the ministry's long-term proposal is approved in the legislature.

Such tax-rate fluctuation will only distort the property market since many would rush in to close deals in order to take advantage of the provisional tax-cut treatment while remaining inactive when they expect taxes will be further lowered again.

I think it's meaningless to come on strong on the legislature's proposal to maintain the halved tax at 30, 25 and 20 percent before the new tax-rate of 40, 30, and 20 percent is facilitated. To make up the capital-gain tax loss, the best way is to increase the below-par government-assessed land prices and the land tax (地價稅), which is, however, not within the central government's authority but within that of local governments.

Nevertheless, the ministry has planned to soon launch incentives for local governments to increase the land tax as well as to improve implementation of other social welfare policies by appropriating subsidies totalling up to NT$5 billion to fund local projects.

TT: Facing deteriorating fiscal deficits, pundits have argued that our eroded tax base should be expanded while there's also room for tax raises. Once President Chen Shui-bian's (陳水扁) campaign promise of not raising taxes in his tenure comes to an end this mid-year, do you think the time for tax-hikes has arrived?

Lin: Tax-cutting policies have always been considered as an effective way to boost the economy, although they may harm the government's coffers. So, we do need a mechanism to well balance the policies' gain and losses on a regular basis, and are working on one. As for tax-hikes, there's no reason for the government to swipe people's pocket money when belts are being tightened.