Fri, May 19, 2000 - Page 12 News List

No peace in a national security tax

By Tsai Tsung-hsi

Chen Shih-meng (陳師孟), deputy governor of the Central Bank of China (中央銀行), recently proposed imposing a "national security tax" (國家安全捐) on Taiwanese investment in China. Although further details have not been released, the proposal has aroused heated discussions.

The monies raised by such a tax would, as the name implies, go toward ensuring national security. However, I think trying to implement such a tax would encounter many obstacles and the whole idea should be scrapped.

First, how would the tax base be defined? Would companies which already have investments in China be liable or just new investors? Or both? What about companies investing in other developing countries? A consensus on just who would be liable would be hard to reach and the debate would be divisive.

Second, what size of a tax is needed to help ensure national security? If the tax rate is too high, business people will try to evade it by establishing companies in third countries to funnel their investments into China. If the rate is too low, the revenue will be too little to be of benefit.

Third, the economic activities of Taiwanese businesses cannot be curbed, whether such a tax is imposed only on business investments in China or on all overseas investments.

Foreign investment is an inevitable trend of the economic development process, when the investment environment changes the cost of production factors and basic conditions for industrial development. These economic dynamics should not be put under government control.

Fourth, Taiwanese investments in China raise economic and political issues of concern to many people here. Some worry that such investments will lead to the export of local industries or challenge the survival of such industries by importing lower-priced products back to Taiwan. Others fear these investments threatened national security due to the political uncertainties caused by cross-strait tensions.

In fact, by improving the investment environment in Taiwan, we can dispel concerns about the weakening of local industries. By easing cross-strait hostilities to reduce political obstacles to economic development, we can avoid damaging our national security. Using a national security tax as a political tool to guarantee Taiwan's security will just not work.

Nevertheless, this doesn't mean that the government should let Taiwanese businesses in China run their own course. Most economists agree that economic problems should be solved through economic means. Therefore, I suggest our government set up a foreign investment protection system to spread out the investment risks of Taiwanese businesses in China.

First, the Ministry of Economic Affairs should establish an organization to take charge of "foreign investment insurance," providing coverage to Taiwanese businesses investing overseas. These businesses should be free to decide whether to participate depending on the countries or the areas of investment. Coverage should be limited to losses due to political factors. Losses caused by market factors or mismanagement should be excluded.

The ministry's organization would submit compensation claims to governments which are responsible for the losses. Supporting measures should be used as a card in negotiations over reasonable compensation and solutions.

The supporting measures would be Taiwan's economic cooperation and foreign aid. The international cooperation department of the Ministry of Economic Affairs is in charge of providing economic aid to friendly developing countries.

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