Thu, Jun 02, 2005 page10

• Tax-reform plan sparks heated debate

  HOW MUCH IS TOO MUCH? Lawmakers and academics said the government should first try to equalize the pain of income taxes before adjusting the value-added tax

  • By Jackie Lin / STAFF REPORTER
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  Pushing tax reform will undoubtedly provoke criticism and reaction, but the government should prioritize its plan to overhaul the most controversial tax regulations before adding to the general public's tax burdens, pundits said yesterday.

  To achieve what it has pledged in terms of fair taxation and social justice, the government should pull out all the stops to cancel the tax-free status for teachers and military personnel, and establish a minimum tax scheme for both companies and highly paid individuals, they stressed.

  "Tax reforms involve the re-arrangements of interests and therefore authorities will meet with a mountain of challenges. But it must not be afraid of offending the minority of interest groups in order to safeguard the benefits of the majority," said Tseng Chu-wei (曾巨威), a professor of public finance at National Chengchi University.

  President Chen Shui-bian (陳水扁) announced on Monday that the government hoped to raise the taxation rate from the current 13.6 percent to 15 percent within three years, and to boost it to 18 percent later on.

  The national taxation rate is a gauge of a nation's tax burden divided by its GDP. Taiwan's tax requirements pale in comparison to those of members of the Organization for Economic Cooperation and Development (OECD), whose national taxation rate is about 27 percent.

  CHEN'S IDEAS

  To achieve his goal, Chen said the value-added tax should be raised in the near future by 2 to 1 percentage points from the current 5 percent, a minimum tax scheme should be imposed and inheritance and gift taxes should be trimmed from 50 to 40 percent to boost investment.

  These measures, however, have been widely criticized as robbing the poor and giving to the rich. Increasing the value-added tax rates would be reflected in commodity prices, so this is seen as a hidden tax on the general public.

  Although the prices of some products might be hiked after the new regulation is put in practice next year, manufacturers' tax costs may not be entirely transferred to consumers due to fierce competition, the Ministry of Finance said.

  Furthermore, daily necessities such as fresh food, agricultural products and rice are exempt from value-added taxes and won't be affected by the new measure, the ministry said.

  However, People First Party Legislator Christina Liu (劉憶如) said levying a value-added tax across all kinds of products does not conform to social justice.

  She suggested that luxury goods be charged a higher tax, and that consumer products that are used on a daily basis, such as medicine, should be free from the tax.

  Opposition lawmakers have also raised concerns that boosting the value-added tax when the economy is not at its peak might create the "Hashimoto effect" seen in Japan eight years ago.

  `HASHIMOTO EFFECT'

  In April 1997, then Japanese prime minister Ryutaro Hashimoto raised the consumption tax from 3 percent to 5 percent in a bid to bail out the Japanese economy. At the time Tokyo's debts accounted for 70 percent of the GDP.

  However, imposition of the tax battered consumer confidence and consumption contracted, speeding up the nation's economic downturn and leading to Hashimoto stepping down the following year.

  Shia Ben-chang (謝邦昌), a professor of statistics and information science at Fu Jen Catholic University, voiced concern that the government might have overlooked the impact such tax increases have on salaried employees.

  "Levying more taxes on the general public while opening big holes to inject capital into the bank bailout fund, BOT (build-operate-transfer) projects and military weapons procurements is a questionable policy," Shia said.

  He urged the government to take into consideration the different welfare structures and economic circumstances in this country and other nations before trying to follow international trends.

  However, Tseng said that raising the value-added tax, as opposed to income taxes, is acceptable -- from a professional point of view -- given that advanced nations are working to increase their consumption tax

  Compared with an OECD member nation's average consumption tax of 20 percent, Taiwan does have some room to adjust its tax, Tseng said.

  "The main point is that President Chen should have the guts to sacrifice the interests of the minority by levying a minimum tax on rich people and companies in order to narrow the widening gap between rich and poor," he said.

  "That being done, imposing a higher value-added tax will not incur a strong backlash because the general public will believe the government is sincere in promoting equitable taxation," he said.
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