Tue, Feb 28, 2012 - Page 8 News List

Reforming vehicle and fuel taxes

By Yang Der-yuan 楊德源

Most people would agree that the nation’s tax system is unfair. The vehicle registration tax is a good example, with cars having the same engine size being taxed equally. That means the tax for a domestically produced car with an engine size of 2,000cc, priced at NT$800,000 (US$27,000), and that for an imported car with the same engine size, priced at several million New Taiwan dollars, is the same for both vehicles. The vehicle registration tax is in effect a regressive tax, making the poor pay more than the wealthy, which is unreasonable.

If the vehicle registration tax were set at 1 percent of the car’s purchase price, the tax on the types of cars normally used by the middle class would be lower than the current tax, while it would increase for luxury cars. This is in line with the principle that the wealthy should pay higher taxes, while giving the middle class some breathing space. Several environmentally friendly concept cars, electric cars or hybrid cars are more expensive and should therefore be granted some deductions to encourage the use of such cars.

The same logic applies to fuel, since fuel tax in Taiwan is a fixed annual sum paid according to engine size. Wealthy car owners use their cars more frequently and they therefore also use roads and other facilities more frequently. However, like the vehicle registration tax, they pay the same fuel tax as other car owners depending on the engine size. In short, the fuel tax is another regressive tax that makes poor car owners pay more than wealthy ones. The solution is to tax fuel usage. The more fuel you use, the more pollution you create. If fuel was taxed, those who use the roads more often and create more pollution would also pay higher taxes, which is in line with the principle that the user pays, while contributing more to environmental protection.

In addition, instead of the current program to subsidize taxi drivers who exchange their old cars for new ones, it would be better to award drivers who buy hybrid cars, a solution that is both more environmentally friendly and that saves on fuel usage. This could avoid demands for fuel subsidies from taxi drivers when fuel prices go up. Reforming the vehicle registration tax and fuel tax would both shift the tax burden to the wealthy and meet demands for environmental protection, while at the same time reducing taxes for the average citizen.

Yang Der-yuan is chair of National Kaohsiung First University of Science and Technology’s department of finance.

Translated by Perry Svensson

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