Fri, Jan 20, 2006 - Page 10 News List

Minister's departure could hinder tax reform

FINANCE PORTFOLIO Lin Chuan was successful in pushing forward tax reform, and it is likely to be difficult to find someone of similar expertise to replace him

By Jackie Lin  /  STAFF REPORTER

Minister of Finance Lin Chuan's (林全) decision to take early retirement is likely to disrupt tax reform efforts after an initial victory last year, market watchers said yesterday.

"If Lin does leave, the new minister must be equipped with strong capabilities, especially in taxation, otherwise the chief will not be able to persuade [the public and lawmakers] to carry out the task," Shirley Yang (楊慶祺), a fund manager who oversees investments worth NT$1.2 billion (US$37.5 million) at Invesco Taiwan Ltd (景順投信), said in a telephone interview.

Locating an ideal successor, given the nation's small pool of taxation experts, will give the government a big headache, she said.

The government has been running budget deficits every year since President Chen Shui-bian (陳水扁) took power in 2000. Government debt amounted to a record NT$3.993 trillion in 2004, about 39 percent of the nation's GDP.

Lin had earlier said the government's ultimate goal is to achieve fiscal balance by 2011. Since late 2002, he has helped push forward several tax schemes to activate the market and improve the tax system, including halving incremental tax rates on property and the legislation of the alternative minimum tax (AMT).

Riding on the success of the AMT legislation, Lin planned to target reform of consumption taxes this year by canceling commodity, entertainment and stamp taxes, as well as increased the value-added tax by one to two percentage points from the current 5 percent to make up for the tax-revenue losses.

The Ministry of Finance is also studying the possibility of unifying inheritance and gift taxes to establish a lifelong wealth transfer system to pursue fair taxation.

"I believe the new ... minister will not cause policy flip-flops but might slow down the process of the planned reform," Yang said.

In contrast, Susan Chu (朱素徵), director at Taiwan Ratings Corp (中華信評), a local arm of Standard & Poor's Ratings Services, was neutral on the Cabinet reshuffle.

"Governments function with systemic and organizational support and will not be impacted just by personnel changes in a post ? unless the government makes an announcement that it is overturning [previous policy]," Chu said.

But Lin's departure should have minimal impact on the much-criticized reform of the financial sector, because political influence has overridden the market mechanism, she said.

The ministry barely achieved the government's goal to consolidate the banking sector last year, which involved halving the number of state-run banks to six.

Under the ministry's instruction, the state-run Taiwan Development & Trust Corp (台開信託) was sold to Jih Sun Financial Holdings Co (日盛金控) in January last year; Bank of Overseas Chinese (華僑銀行) was taken over by Polaris Financial Group (寶來集團) last March; Taiwan Cooperative Bank (合庫銀行) announced it would take over smaller rival Farmers Bank of China (農民銀行) last November; and Mega Financial Holding Co (兆豐金控) plans to buy state-run Taiwan Business Bank (台灣企銀) this year. But the plan to privatize state banks to boost their competitiveness has been hindered at the legislature — which slashed budgets earmarked to fund the release of government shareholdings — and by vocal protests by bank employees.

“If the government wants to speed up the privatization process, the new minister needs to come up with the right methods as Lin was not aggressive in this regard,” Yang said.

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