Sun, May 06, 2018 - Page 6 News List

Government must push for capital to be returned

By Vester Hung 洪于修

A few weeks ago, Democratic Progressive Party legislators Karen Yu (余宛如) and Liu Shih-fang (劉世芳) proposed at a news conference the drafting of a special act to encourage Taiwanese to invest their capital in Taiwan. The message was that the Ministry of Finance should not put up obstacles for repatriating Taiwanese capital.

According to media reports, Taiwanese companies listed on the TAIEX and the over-the-counter market are keeping as much as NT$4.8 trillion (US$161.5 billion) overseas instead of transferring it back to Taiwan. In reality, Taiwanese likely keep 10 times that amount hidden overseas.

If part of that money was sent to Taiwan, it would be a great boost to the sluggish economy.

Most nations adopt tax reduction or exemption measures to attract capital and improve their economy. For instance, in the early days of economic reform, China offered a two-year exemption from business income tax for the first profit-making year, followed by a three-year, 50 percent reduction on the same tax.

This helped China become the world’s second-largest economy.

The Indonesian government offers an amnesty to encourage investment in the country, and the results have been very good.

US President Donald Trump’s administration has slashed corporate tax rates, while similar measures have been introduced by the governments of Vietnam and Thailand, as well as European nations.

As the Taiwanese economy is sluggish and foreign investors are staying away, the Taiwanese government should encourage the repatriation of Taiwanese capital that is being retained overseas.

Ministry officials worry that returning capital would drive up housing and stock prices, although both markets are in dire need of capital injections.

Once these funds enter circulation, they generate a 5 percent sales tax and sellers have to pay an annual business tax, while profit surpluses retained by companies can be taxed as undistributed earnings.

Even if no investment is made and no money is spent, funds saved in banks generate interest, which in turn is levied as part of income tax. There are also countless other derivative taxes, such as securities transaction, land value, house, vehicle license, luxury, estate and gift taxes.

If this capital is retained overseas and not sent back to Taiwan for fear that 20 percent of it will be taxed as part of the business income tax, no tax will be generated at all.

Officials have said that no tax would be levied if the remitted funds are categorized as investment capital, and that only earnings made from investments would be taxed.

For the average Taiwanese this is a complicated regulation, because given the particularities of the political and economic situation, Taiwanese businesspeople would not necessarily be able to transfer investment capital through ordinary banking channels.

Investment capital sent to China and other places overseas through underground channels or in the form of transactions of products, raw materials, machinery or equipment, and even exchanges of business interests between two nations, can all be treated as different kinds of investment capital.

However, such practices are difficult to prove and sometimes there is simply no solution.

Taiwanese authorities should therefore focus on boosting the economy by implementing an unconditional tax amnesty to encourage the repatriation of capital to Taiwan. As long as the economy is revitalized or capital is sent back to Taiwan, tax income will naturally increase. This requires wisdom on the part of the government and it would benefit all Taiwanese.

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