Sat, Dec 22, 2018 - Page 8 News List

Corporate tax cuts not the answer

By Wei Shih-chang 魏世昌

On Wednesday last week, Fubon Financial Holding Co chairman Daniel Tsai (蔡明忠) made some comments on encouraging Taiwanese entrepreneurs who run businesses overseas to come back and invest in Taiwan.

Tsai was highly critical of the Ministry of Finance, saying that it approaches business and innovation with the attitude of a tax collector.

He said that Taiwan used to offer many tax benefits to incentivize investment, but most of them have been scrapped.

Minister of Finance Su Jain-rong (蘇建榮) actually said that the 10-year tax benefits provided under the Statute for Industrial Innovation (產業創新條例) would be extended.

Tsai said that were it not for the many incentives that used to be offered, Taiwan would not have the strong electronics industry that is has today.

He said this issue is not something that the Ministry of Economic Affairs, which is in charge of business and industry, can resolve, so he hopes that the Cabinet will in future not appoint finance ministers with a background in taxation.

Tsai’s words do not match reality. People used to think that the nation’s high-tech industries were more productive and internationally competitive than traditional labor-intensive industries, but their success actually arises from the long-term special treatment the government gave them, which included tax benefits, and various kinds of incentives and subsidies.

Since tax benefits are concentrated on high-tech industries, their real tax rates are lower than those paid by traditional industries. Some high-tech companies even end up with “negative taxes” where they are entitled to more tax reductions and exemptions than can actually be deducted.

Another point to consider is that technology companies only create an average of 6.4 jobs for every NT$100 million (US$3.25 million) invested, whereas traditional industrial companies create an average of 16 jobs for the same investment.

Taiwan should not cut taxes any further.

The first reason for this is that profligate tax cuts erode tax revenue and exhaust the national treasury. Taiwan’s industrial policies rely on tax cuts. Starting with the 1960 Statute for Encouragement of Investment (獎勵投資條例), which was abolished 1991, and then the 1990 Statute for Upgrading Industries (促進產業升級條例), which was in force until 2010, the government has over the past 50 years never stopped providing tax benefits to industrial firms.

Under the Statute for Upgrading Industries, the annual revenue loss exceeded NT$100 billion, so that over the nearly 10 years during which it was in force, taxes were cut by more than NT$1 trillion. This was a huge revenue loss for the government, which had no option but to borrow when there was no money available.

The second reason is that the subsidies given to high-tech companies have made them accustomed to the easy life, so they lack creativity, do not cultivate enough talent and have repeatedly missed opportunities for industrial restructuring and upgrading.

In contrast, the governments of other players in the global market, such as Germany and Japan, do not give special funding to technology firms.

Third, when calling for tax cuts, businesses say they are a much better way of creating job opportunities than giving the money to the government.

However, the reality is that when employers receive tax reductions and exemptions, some of the money goes into investment overseas or for property speculation, driving up real-estate prices in the process. Rarely is it used to raise the salaries of basic workers or hire more employees, which would create jobs and spur economic development, so it does nothing to help the public.

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