The Legislative Yuan's Finance Committee has proposed using a 2 percent business tax on banks to finance a NT$140 billion fund to help clean up the nation's troubled loans.
Originally, government officials had proposed scrapping the 2 percent tax, allowing banks to have more cash on hand to write down bad loans.
But now the idea is to keep the tax in place, and instead use the proceeds to finance a US-style Resolution Trust Corp (RTC) to help clean up the nation's bad debt problem.
The switch may indicate that the government is growing impatient with the banking industry's efforts to deal with its bad loans, which may exceed NT$1 trillion, according to some estimates.
The business tax had once been 5 percent and was lowered to 2 percent to help banks clean up their books. But although banks in recent years have had extra cash as a result of the tax break to write off loans, non-performing loan ratios nonetheless have been rising.
Under the finance committee's proposal, the RTC-style fund will receive NT$120 billion from the 2 percent business tax over the next four years. Another NT$20 billion will come from deposit insurance premiums.
Initially, however, the government will issue bonds to finance the NT$140 billion fund, then use the tax receipts to pay back the debt.
Credit cooperatives for farmers' and fishermen's associations -- which have non-performing loan ratios as high as 15 percent or more, according to unofficial estimates -- are expected to be the biggest beneficiaries of the RTC-style fund.
The Ministry of Finance supports the Finance Committee's decision.
Earlier, the Ministry of Finance had asked the Legislative Yuan to provide NT$200 billion from the government's coffers to pay for the RTC fund, but lawmakers on the Finance Committee balked at the idea.
Instead, the committee decided to keep the 2 percent business tax on banks in place, reasoning that it was better to have banks pay for the cost of cleaning up the nation's troubled financial sector, rather than the public.
Last year, the finance ministry said the 2 percent tax would be reduced to zero so that banks could have extra funds to write down bad loans.
The Legislative Yuan's Finance Committee on Wednesday held a meeting to review a number of amendments concerning the financial reform of problematic financial institutions, including changes to the Business Law, Central Depository Insurance Company Regulations and RTC Regulations.
The amendments passed their first reading during the meeting.
If the amendments pass the third reading, the 2 percent business tax rate would be reimposed on banks later this year.
Lawmakers are undecided as to whether the tax should be maintained after it expires in June 2005.
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