The Cabinet yesterday approved commodity tax deduction plans to stimulate used car exports and new vehicle replacements, in yet another bid to prop up the flagging economy.
The tax plan, which still needs legislature approval, came after exports contracted for the eighth straight month last month, with the nation’s export-focused economy driven closer to a recession.
Under the revision bill to the Commodity Tax Act (貨物稅條例), people exporting used cars might receive a NT$50,000 (US$1,522) commodity tax deduction, if they buy a new vehicle within six months before or after the export.
“The stimulus measure aims to boost sales of cars, auto parts and other businesses in the supply chain by NT$10 billion a year while creating 1,500 job opportunities,” Minister of Finance Chang Sheng-ford (張盛和) told a news briefing.
It might also help tap into the used-car market and reduce carbon emissions, as old cars tend to be less environmently friendly, Chang said.
Only cars manufactured at least two years earlier than the intended sale date and owned for at least one year qualify as used cars, and owners must obtain export documents and buy a new vehicle to claim the tax deduction, he said.
There are 7.55 million cars in Taiwan and 53 percent of them are more than 10 years old, he said.
Chang said that the tax measure could motivate car rental companies to buy new vehicles, which would increase new car sales by about 10,000 units a year.
The stimulus is for a five year period and could generate an extra NT$8.7 billion in net tax revenues after factoring in potential tax deductions of NT$500 million a year, he said.
About 500,000 used cars are traded on the global market a year where Japan, South Korea and Singapore account for heavy shares, but Taiwan does not take advantage of this market, he said.
While exports of used cars might not lift GDP growth significantly, it would help spur domestic demand and ease air pollution, Chang said, adding that used cars are needed in emerging countries.
The economy grew 3.84 percent in the first quarter, slowed to 0.52 percent in the second quarter and might have slipped into a downturn last quarter, government officials said.
“Exports indeed fared worse than expected during the July-to-September period, pushing the economy to the negative zone,” Directorate-General of Budget, Accounting and Statistics (DGBAS) Minister Shih Su-mei (石素梅) told the legislature’s Finance Committee yesterday.
Shih declined to speculate on a rebound in exports, except to say that external demand could improve with the advent of the Christmas season.
As a small and open economy, Taiwan is vulnerable to volatility in business cycle abroad, Shih said.
The agency is due to unveil the preliminary third-quarter results at the end of this month.
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