Wed, Feb 26, 2014 - Page 13 News List

Economists divided over practicality, effects of MOF’s fiscal reform package

By Amy Su  /  Staff reporter

Economists yesterday expressed mixed views on the impact and feasibility of the fiscal reform package unveiled by the Ministry of Finance (MOF) a day earlier.

“Compared with the introduction of the capital gains tax on stock transactions, the effects of the fiscal reform package will be more widely felt,” said Gordon Sun (孫明德), director of the Taiwan Institute of Economic Research’s (台灣經濟研究院) macroeconomic forecasting center.

The ministry on Monday announced that it is planning to raise the business tax on banking and insurance institutions from 2 percent to 5 percent.

The ministry also plans to adjust the tax brackets for the consolidated income levy, as well as the maximum limit of the imputation tax system, in a bid to narrow the government’s yawning budget deficit by requesting more feedback from high-income groups.

The proposed tax adjustments are aimed at generating more revenue for the government, but Sun questioned the timing of the administration’s plans to increase certain tax rates, given that the Taiwanese economy is still fragile.

The government has launched various reform initiatives over the past two years, including the implementation of the securities capital gains tax in 2012 and the pension reform plan of last year, and controversy has surrounded all of them.

“It is doubtful that the fiscal reform package will be approved by the legislature during the first half of the year,” Sun said.

Chung-Hua Institution for Economic Research (中華經濟研究院) president Wu Chung-shu (吳中書) said that implementing the ministry’s reform scheme is inevitable if the nation’s economy is to achieve long-term fiscal soundness.

“No one will be happy about a higher tax, but there is no ‘absolute fairness’ when it comes to tax reform,” Wu said.

Taiwan’s tax burden ratio is relatively lower than that of most other countries — recorded at 12.6 percent last year — but Wu said the nation cannot afford such a low tax burden if the government deficit continues to grow.

However, Yuanta-Polaris Research Institute (元大寶華綜合經濟研究院) president Liang Kuo-yuan (梁國源) said the package will not have a significant impact on the economy.

The package’s supplementary measures geared toward raising the deduction amount of consolidated income tax for the general public could drive private consumption up slightly, Liang said.

Instead of generating more revenue, the government should make more of an effort to adjust its expenditure to eliminate its wasteful spending, of which numerous examples abound, he added.

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