Business leaders urge government to lower taxation

While from Friday, Taiwanese business people are allowed to conduct direct investment in China without going through third places, some business representatives said the government should allow further tax exemptions to encourage more Taiwanese capital flowing back to the nation in the long run.

"If earnings in China are tax-free here [in Taiwan], more companies will not consider making indirect investment via third places," China Development Financial Holding Chairman Liu Tai-ying (劉泰英) said yesterday.

As many Taiwan businesses invested in China through third places, the government has found it very difficult to track money from Taiwan businesses flowing out of the nation, he said.

Liu made the remarks yesterday after the Ministry of Economics Affairs announced a new policy allowing local companies to directly invest in China.

In a statement, the ministry said that Taiwanese groups or firms that invest or enter into technical cooperation in China will not need to channel their investments through a third place. But financial disclosures will be required for any entity with cumulative China-bound investments over US$20 million, it said.

Those who fail to comply with the financial-reporting requirements could have their permits to invest directly in the mainland forfeited and be asked to repatriate the invested funds back to Taiwan, the ministry said.

While welcoming the government's new policy toward China-bound investment, Liu and several local business leaders yesterday also called on the government to speed up the implementation of 323 agreements reached at the Economic Development Advisory Conference (EDAC, 經發會) last August.

They urged the government to soon facilitate the zoning of a free-trade district, direct cross-strait links and financial reforms such as establishing a Financial Supervisory Board to monitor management of new emerging financial holding companies.

While business leaders have expressed opposition to tax increases, saying it will dampen private consumption and further impact the nation's economy, David Hong (洪德生), vice president of Taiwan Institute of Economic Research, argued that the government should raise taxes by 1 percent on average every one or two years and cancel preferential tax breaks to developing industries, high-tech ones in particular, so as to increase tax revenues to meet the government's current deficit of NT$3 trillion within five to 10 years.

"The government expenditures account for 25 percent of our gross national product (GNP) while tax revenues only account for 13 percent of the GNP," Hong said, adding that the policy should take effect as early as in 2004 when legislation completes.

Business leaders like Steve Chang (張昭焚), chairman and CEO of U-Tech Media Corp (鈺德科技), strongly disagreed with Hong's proposals to address the government's financial difficulties, saying the cancellation of governmental subsidies and preferential treatments to high-tech companies will only lessen their enthusiasm to set up shop locally.

"It'll be a killer [to the nation's economy]. Ninety-five percent of enterprises still need governmental support and 35 percent of the disadvantaged groups need tax protection," Chang said.

Luo Huai-jia (羅懷家), executive director of the industry policy center at Taiwan Electrical and Electronic Manufacturers' Association (電電公會), also said that Hong's proposal will stifle high-tech companies' willingness to invest domestically.