The government should seek to expand the tax base rather than amend the tax code in a piecemeal fashion as the practice would prove ineffective in promoting social equality and economic prosperity, lawmakers and academics said yesterday.
The task force led by Vice Premier Paul Chiu (邱正雄), charged with overhauling the nation’s tax system, is convening its second meeting today, with members set to discuss proposals to lower personal and corporate income taxes, among other measures, to promote a more equitable tax system and create an environment more favorable to economic growth.
Democratic Progressive Party Legislator Huang Wei-cher (黃偉哲), an advisory member of the tax reform committee, said he did not favor lowering the corporate income tax rate from 25 percent to 17 percent to placate industries after the Statute for Upgrading Industries (促進產業升級條例) expires at the end of next year.
The statue, promulgated in 1990 and revised several times later, exempts high-tech companies from paying business and profit taxes, as well as from tariffs on imported manufacturing equipment. The companies also enjoy various other tax breaks for expanding or upgrading their business.
The expiration of the statute would bring in new tax revenues and could help the government in its aim of lowering corporate and personal income taxes.
Huang agreed that lowering corporate taxes could make the country more attractive to foreign and domestic investors, but he believed a cut of 8 percentage points was too radical.
“The reform would give Taiwan the second-lowest profit tax rate in Asia, next only to Hong Kong,” Huang said by telephone. “It is more reasonable to set the [corporate tax] rate at 20 percent. The government should spend more money on disadvantaged groups to promote social equality and justice.”
Independent Legislator Alex Fai (費鴻泰), another member of the tax reform committee, agreed that the industrial promotion statute should be allowed to expire.
“Companies incapable of staying competitive after two decades of government help might as well exit the market,” Fai said.
Fai favors the idea of lowering the corporate tax rate to 17 percent if Taiwan is to compete with Hong Kong and Singapore as a regional financial hub. He said the government should also slash the inheritance tax as Hong Kong and Singapore had abrogated the levy altogether.
The Ministry of Finance has put the subject on the backburner to avoid alienating labor and other activist groups.
Norman Yin (殷乃平), professor of Money and Banking Department at National Chengchi University, said it was more effective for the government to expand the tax base to promote equitable distribution of wealth.
Yin said the reform panel could achieve this goal by restoring the capital gains tax and scrapping the securities transaction tax, for instance.
Sellers of securities currently have to pay a transaction tax of 0.3 percent for each share transaction, whether they lose or gain.
The rate is 0.01 percent for corporate bonds and other types of securities approved by the government.
“It is more reasonable to tax the gainers,” Yin said. “Such a tax would not hurt Taiwan’s competitiveness as many countries have long instituted the levy.”
Thomas Lee (李桐豪), another finance professor, agreed and suggested the government reinstate income taxes for military personnel and primary as well as junior high schoolteachers.
Lee added that the reform panel also should work to bring “underground economy” to the surface by requiring all traders and firms to use invoices to expand the tax base.
“Thanks to a lack of trading records, some people make a fortunate without paying any income tax,” Lee said.
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