Cabinet slashes bank tax to help sagging economy

The Cabinet yesterday announced a series of radical measures to bolster the deteriorating banking system and rebuild public confidence in the economy.

Following a high-profile economic forum with leading business leaders and Cabinet officials, the government announced that it will abolish the business tax for financial institutions -- currently at 2 percent -- to allow more breathing space for the nation's banks.

The government also vowed that it will "definitely not raise taxes" during its term, but will seek other sources to resolve its rising budget deficit.

"No tax hike is not a slogan," but a feasible policy, said Premier Chang Chun-hsiung (張俊雄).

The Ministry of Finance also announced that traditional industries can apply for six-month extensions to all loans owed by such companies that are due within six months. "It will help trigger a virtuous cycle," Chang said.

"On the one hand, this will solve the funding problem for small and medium-sized enterprises while at the same time it will help the long-term goal of tax reform."

The ministry will, however, seek ways to help local governments to make up for the money lost due to the tax cut, he said.

Following the meeting, top business leaders applauded the government's economic rescue measures, even though the government refused to announce a temporary suspension in the stock transaction tax, as reportedly urged by some big business leaders.

Wang You-tseng (王右曾), head of Rebar Group, which also owns the Chinese Commercial Bank, said he is "fully supportive of" and "very satisfied with" the measures.

To offset revenue losses caused by the tax cut, Chang said the government will -- among other measures -- set up a "National Property Bureau" which will divest idle state-owned land.

The policy will also release more land for commercial purposes from the state, which owns nearly 65 percent of all the land in Taiwan.

Apart from the tax cut, the government will also ask major financial institutions to prepare a total of NT$450 billion to be provided to traditional industries at a preferential interest rate of between 6.5 percent to 7 percent for a maximum of seven years.

Companies without adequate collateral can also seek support from the government. The Small and Medium Enterprises Credit Guarantee Fund will help guarantee their funds.

Minister of Finance Yen Chin-chang (顏慶章) said that Taiwan will invite international Asset Management Corporations (AMCs) to "reduce the cost of handling the bad loans" in the banking system.

Minister of Economic Affairs Lin Hsin-yi (林信義) said the government would ensure that domestic businesses will have adequate water and electricity supplies, but refused to make any comment on the controversial Fourth Nuclear Power Plant.