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Chen Shui-bian wants agencies to review tax policies

President Chen Shui-bian (陳水扁) yesterday urged government agencies to review and revise current tax regulations to pare the widening budget deficit and promote fair taxation.

Speaking at a meeting of his economic advisory panel, Chen said that the value-added tax should be raised by one to two percentage points from the current 5 percent in the near future.

This tax increase is expected to inject at most NT$68 billion (US$2 billion) per year into state coffers, which have suffered a shortfall of more than NT$300 billion annually over the past few years, said Lin Hsin-yi (林信義), convener of the advisory panel.

According to government forecasts, the budget deficit will worsen to a record NT$337.3 billion this year from an estimated NT$304 billion last year.

Chen also said the tax base should be widened and tax items simplified to boost efficiency.

Major directions laid out in his speech included establishing a minimum corporate tax scheme and considering imposing capital-gains tax on transactions of unlisted companies' stocks, he said.

Some companies, particularly high technology firms, are exempt from income taxes because of tax breaks the government offers to encourage investment.

Rock Hsu (許勝雄), chairman of the Taiwan Electrical and Electronic Manufacturers Association (電電公會), last week suggested that Taiwan's minimum corporate tax rate should be set at between 3.75 percent and 7.5 percent to maintain competitiveness as China imposes an average 7.5 percent tax on companies.

In response, the Ministry of Finance said Hsu's proposed range can neither meet the public's expectations nor increase tax revenues.

The ministry said that with a minimum corporate tax of 10 percent, as Finance Minister Lin Chuan (林全) has planned, the government can boost tax income by around NT$20 billion a year and promote equitable taxation.

As the government has not reached a consensus on this issue, Lin Hsin-yi said the advisory panel has not set any timetable to push for this policy change.

Chen set out instructions that inheritance and gift taxes be trimmed from 50 percent to 40 percent, as part of the effort to boost investment.

This tax cut will translate into a loss of NT$8.97 billion.

However, when asked how much this new investment scheme will create that its only a 10 percentage point difference, Lin Hsin-yi did not explain.

In general, Chen hopes to increase the national taxation rate, a gauge that divides taxes by GDP, from the current 13.6 percent to 15 percent within three years, and set a longer-term goal of 18 percent.

He said the ratio at the Organization for Economic Cooperation and Development is about 27 percent.

Chen's instructions are in line with conclusions reached by the Economic Development Advisory Conference in 2001, which set a goal of balancing the budget in five to 10 years.

also see story: Finance ministry still pushing for corporate tax revamp
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