With a rising national deficit and increasing public debt, it is difficult for the government to propose tax cuts to address the current situation. It would be even more difficult to propose new taxes. But the Ministry of Finance declared that it has to take action.
On Thursday, Minister of Finance Lin Chuan (
Lin said the proposal is part of the ministry's plan to impose a "minimum tax scheme" on companies and high-income earners that are in businesses that enjoy plenty of tax breaks.
But concern is growing among investors that the government is thinking of re-imposing the capital-gains tax on stock investments, once known as the Securities Income Tax (
Taiwan first imposed the tax in 1973, when Li Kwoh-ting (
The tax remained suspended until 1988, when former finance minister Shirley Kuo (
This time, critics say the tax proposal would negatively impact the nation's stock-investment environment while driving away foreign investors. Yet the stock market appeared stable on Friday. The TAIEX rose 0.68 percent to close at 5,967.96 points, extending a three-week high.
The stable stock performance may be a relief for both the ministry and investors. But the key issue is not the Securities Income Tax alone, but the government's tax reform efforts. The nation is expected to see a record budget deficit of NT$337.3 billion and record national debt of more than NT$3 trillion this year, according to government statistics.
The tax system places the burden on the salaried middle classes, as the government has given certain industries and sectors preferential tax rates over the past decades, which have undermined the tax base.
Currently, there are two major sources of tax breaks offered to companies. One is a five-year tax exemption with allowable deductions for investments in compliance with the Statute for Upgrading Industries (促進產業升級條例). The other is a tax exemption on capital gains, such as the Securities Transaction Tax (證券交易稅), in accordance with the Income Tax Law (所得稅法).
The Ministry of Economic Affairs has been against the abolishment or reduction of tax breaks to industries, for fear of capital outflow. But given the country's bleak financial situation, the Industrial Development Bureau is drafting a proposal to exclude 110 products -- including notebook computers and 8-inch wafers -- from the so-called "emerging important and strategic industries," which enjoy a five-year exemption from the 25 percent business income tax under the Statute for Upgrading Industries.
The centerpiece of Lin's minimum tax scheme is not only to review the preferential tax rates in the Statute for Upgrading Industries, but also to broaden the tax base. In short, the ministry must establish a tax system that prevents taxpayers from escaping their fair share of tax liability by using tax breaks.
Lin must be prepared to dismiss the foreseeable opposition with reasoned answers and convincing numbers. This includes specifying what constitutes taxable income and allowable deductions, as well as what calculations will be used to determine tax rates.
Lin's best weapon to counter political pressure and to answer his critics is professionalism.
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