Tue, Sep 06, 2005 - Page 11 News List

Tax reform will lure back capital: Lin

The Ministry of Finance's Alternative Minimum Tax proposal was approved by the Cabinet last week despite objections from the business community, marking the first step in reforming the nation's tax system. Minister of Finance Lin Chuan yesterday sat down with `Taipei Times' staff reporter Jackie Lin to talk about what comes next

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Minister of Finance Lin Chuan gestures at an interview with the Taipei Times yesterday.

PHOTO: CHANG CHIA-MING, TAIPEI TIMES

Taipei Times: The Alternative Minimum Tax proposal is currently pending legislative approval, although nearly 40 percent of local businesses have said this measure would push them to move part of their production offshore, according to a recent survey by the Chung-Hua Institute of Economic Research (中經院). How would you rally support for your tax scheme?

Lin Chuan (林全): First, I think some statistics and hypotheses stated in the survey were based on an insufficient understanding of our proposal. I would like to look into the report before giving detailed explanations.

Compared with Taiwan's main economic rivals -- Hong Kong and Singapore -- our minimum corporate tax rate of 10 percent is not higher than theirs. Therefore, I don't think the proposal will affect businesses' decisions on which country to invest in. China does not necessarily have a lower rate in the long run, as its preferential tax schemes are only valid for the first five years.

Furthermore, as China has a different industrial structure, we have seen many of Taiwan's traditional, labor-driven industries lose their competitive edge and migrate to China for its cheaper labor costs. This situation will not change simply because we implement a different tax system.

What's more important is our competition with Hong Kong and Singapore, as they have industrial structures similar to that of Taiwan. But our tax rate is lower than theirs.

TT: What are the obstacles and difficulties you face in implementing the long-anticipated tax reforms?

Lin: We need to persuade a great number of people [of the new system's advantages], as this is a democratic society and the legislature is dominated by opposition parties. We must garner public support and consensus to push forward the reform process. We don't have many precedents to follow, and therefore we need to spend more time to help people understand the reforms, the reasons why they are necessary, their basic spirit. We must also continue to communicate with business groups to win their support.

I mentioned in May that I will allow myself one more year to work on the tax reforms. By next May, when the next legislative session ends, if we still fail to get the new tax measures implemented, I would rather leave my post and let someone else who is perhaps more capable do the job. This is because I want to accomplish something during my tenure as finance minister.

TT: The finance ministry has made many compromises to get the Cabinet to pass the minimum tax scheme. What are your plans for the second stage of reforms?

Lin: Our next step after completing the income-tax reforms will focus on reforming consumption tax. Making some breakthroughs in pursuing fair taxation has been our top priority, as this will promote rationality and public acceptance of future taxation improvements. We have gained consensus on increasing the value-added tax, decreasing commodity tax items, canceling the stamp tax and overhauling the entertainment tax. These will be our targets in the next stage, if the legislature passes the minimum tax scheme by the end of the year.

In addition, imposing a tax on overseas income and reducing the inheritance and gift taxes will also be addressed in the next stage. People have been talking about attracting capital to flow back. I believe the most effective way of doing this is to levy taxes on people's overseas property while reducing income tax at home. This way, they'll find there is no difference where their capital is placed, which will naturally lure their money back to the home market.

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