Sun, Mar 02, 2014 - Page 8 News List

Plan offers route to real tax reform

By Wang Jung-chang 王榮璋

On Tuesday last week, Minister of Finance Chang Sheng-ford (張盛和), presented a plan for sound national finances. It is pleasing that the government acknowledges that Taiwan’s finances are not sound and is no longer taken in by former minister of finance Lee Sush-der’s (李述德) fairy tales about how “the Republic of China’s (ROC) finances are the best.”

The question now is whether this is a case of the government having taken a long hard look at the anger and unfairness caused by its failed finance policies, the deteriorating employment situation and the increasing wealth gap and finally drawing the necessary conclusions and presenting this reform plan now, in an election year, or whether the plan is just another ruse similar to the reinstatement of the capital gains tax on securities transactions, which was withdrawn as soon as things got rough.

To get the answer, Taiwanese will just have to wait and see if the plan will pass the Chinese Nationalist Party (KMT)-controlled legislature or if it will be trimmed and slimmed, or even torn completely to shreds.

The parts of the finance ministry’s plan gaining the most attention are the proposed changes to the business tax for financial services, the Unified Income Tax and the Consolidated Income Tax.

While a lot of attention has gone to debating the benefits of individual taxes and their impact, there has been no discussion of whether these taxes will help alleviate national debt pressures and shrink the wealth gap. Even if the finance ministry’s plan is passed by the legislature, it will only raise about NT$80 billion (US$2.64 billion), while Taiwan’s annual financial deficit is between NT$270 billion and NT$300 billion. If the government continues to borrow NT$120 billion every year, then even if annual economic growth remains more than 3 percent and the funds raised by the ministry’s current plan are deducted, the government must still come up with another NT$70 billion to NT$100 billion to fill the hole.

Furthermore, tax reductions do nothing to reduce the wealth gap, because they will have no effect on low-income earners who do not earn enough to be taxed and households with an annual income between NT$520,000 and NT$1.17 million will receive a reduction of just NT$2,400. The extra NT$200 that gives them each month will not even buy a pack of diapers or a can of milk powder.

If there were a choice, the vast majority would rather see their income increase by NT$20,000 per month, happily paying the NT$2,400 in extra taxes.

The best to be said about this plan to create sound national finances would be to call it the beginning of fiscal reform. Even if the plan is implemented, Taiwan will have a long way to go before the nation enjoys a sound fiscal situation.

A media outlet has identified the three tricks that anti-reform forces employ every time there is talk of fiscal reform: Reform opponents say that this is not the right time, that reforms must be accompanied by complementary measures and that the current tax system already offers the functions that the reform is supposed to create. They are using many different excuses to procrastinate, delay and thwart reform.

The current plan still has to be reviewed by the Cabinet and passed by the legislature. One can only speculate as to whether Premier Jiang Yi-huah (江宜樺) and President Ma Ying-jeou (馬英九) will back off under the pressure from legislators, capitalists and media outlets in league with big business. The memory of how former minister of finance Christina Liu (劉憶如) resigned after the protests against the implementation of the capital gains tax on securities transaction makes it very difficult to be optimistic.

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