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Editorial: Energy tax needs careful handling

For the past eight weeks, Minister of Finance Ho Chih-chin (何志欽) has been touting a tax reform plan to plug one particularly gaping whole in the nation's coffers -- energy revenue. Last week, however, opposition lawmakers, manufacturers and the Ministry of Economic Affairs (MOEA) banded together in an unexpected alliance to disrupt Ho's plan to impose an energy tax.

The Ministry of Finance has said the proposed energy tax will include tariffs on gasoline, diesel, fuel oil, natural gas and liquefied petroleum gas through incremental increases each year until 2016, and will be offset in part with the abolition of commodity taxes on rubber tires, drinks, plate glass and electric appliances.

But opposition lawmakers say the new tax would cost households an additional NT$3,000 per month, while the MOEA warned the new tax would reduce economic growth by 0.16 percentage points a year.

On the face of it, the energy tax is to be applauded because anything the government can do to encourage energy conservation is welcome. The nation's carbon dioxide emissions per person rank third in the world and being heavily dependent on imports for our energy needs, we have to improve on this.

The public uproar against the energy tax has not completely undermined Ho's plan. At this point in time, no one should be asking Ho to concede before the draft bill is reviewed by Cabinet on Wednesday and by the Legislative Yuan some time after that -- the autumn session of the legislature is due to start before the end of this month.

However, it may well be time for the finance ministry and the government as a whole to re-examine its policy priorities. Some time spent considering how the government communicates with relevant industry sectors and the general public before launching important policy initiatives -- particularly tax increases -- is also probably in order.

Ho said the proposed energy tax was not a tax hike but part of the ministry's overall tax reform agenda and would help promote energy efficiency and conservation. But for the sake of energy conservation, the finance ministry's energy tax plan is probably no better than asking the MOEA to let domestic energy companies such as China Petroleum Corp and Taipower charge realistic prices for their products -- the price of a tank of gas in Taiwan lags far behind the skyrocketing price of oil on the international market.

So long as the government imposes price controls on oil and electricity in an effort to fight inflation, the implementation of an energy tax is only a subsidiary or patch-up measure, while the public will never develop a natural incentive to conserve their fuel usage when prices rise.

There is nothing wrong in the finance ministry introducing an energy tax plan, given that more than 130 lawmakers across party lines had also endorsed a similar draft energy tax bill in May. But the ministry also needs to reach out to the people and explain the worth of its plan. In a country where wages are unlikely to rise this year and next, even contemplating another tax hike is a recipe for spirited opposition.

Any measures that the government may propose to offset the effect of the energy tax for low income earners -- the tax will pull in NT$146.4 billion (US$4.45 billion) in the first year of implementation and NT$500 billion in 10 years -- are probably welcome in this context. It is also imperative that the tax is implemented in stages to lessen its impact on the economy and smooth-over any adjustment problems.
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