Mon, Jan 02, 2006 - Page 10 News List

Lin lauds nation's new AMT plan at taxation conference

By Jackie Lin  /  STAFF REPORTER

Taiwan's alternative minimum tax (AMT) system will avoid the taxation problems currently seen in the US and effectively raise tax revenues while affecting only well-heeled individuals, Minister of Finance Lin Chuan (林全) said on Friday during a seminar.

Lin made the remarks while chairing a roundtable discussion on the second day of the two-day Taipei Conference on Taxation: Theory, Policy and Administration, which was organized by Academia Sinica.

The nation's first tax hike in nearly four decades, the AMT scheme came in to effect yesterday, and requires businesses to pay a tax rate of between 10 and 12 percent on annual earnings surpassing the NT$2 million (US$60,900) tax-free threshold and individuals to pay a 20 percent tax for income above the NT$6 million threshold.

As the government was celebrating its hard-won victory, a US taxation expert attending the seminar raised doubts about the effectiveness of the scheme by citing the US' experience.

Leonard Burman, the former assistant secretary for tax policy at the US Department of the Treasury, said a similar AMT was proposed in the US in 1967 when the treasury secretary reported to the Congress that 155 high earners did not pay any tax. The law was enacted in 1969.

However, the system turned into a "disaster" and a "monster," according to Burman, who is a senior fellow with the Urban Institute, a Washington-based economic and social policy research organization.

"The tax plan was supposed to go after a few high earners. But according to the US' projections, it will have taxed almost 30 million taxpayers by the end of this decade," he said.

Now the US government is facing a dilemma. The AMT has failed to greatly increase tax revenues as it has largely enveloped the middle class. Furthermore, because of the disturbing and ineffective nature of this tax scheme, the US finds it difficult to come up with any kind of tax reform that can be easily sold to US citizens, he said.

"Maybe the best way for the US to fix it is to eliminate the AMT as part of systemic reform," Burman concluded.

Expressing his confidence in Taiwan's version of the AMT, Lin said the ministry has kept the US experience in mind and raised the tax-free threshold to specifically target high earners and linked it with an inflation index.

The minister said that the US government at the time announced tax cuts and also expanded the tax base, leading to the inclusion of the middle class in the AMT.

"This would not be in line with the spirit of simplifying taxation but instead would cause public dissatisfaction. That's why we tried to avoid it," Lin said.

While the participating academics agreed that devising a simple and comprehensive tax system is crucial, they admitted that it's easier said than done as political forces usually constitute major obstacles.

Drawing from the experience of developing countries, James Alm, chairman of the economics department of Georgia State University, noted that the best time for comprehensive reform is paradoxically often during times of bad economic performance and that any reforms must take implementation into consideration.

More importantly, it is better — but much harder — to complete a comprehensive fiscal reform than simply a comprehensive tax reform, Alm said.

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