Premier William Lai (賴清德) yesterday ordered the government to hasten its efforts to reach agreements with the US in response to the US’ planned tax reform, which could boost exports and help Taiwanese businesses reduce their reliance on China by relocating their investments to the US.
The US’ Tax Cuts and Jobs Act signed into law last year introduces reduced tax rates for businesses and individuals in a bid to spur economic growth, with its effects expected to be felt internationally.
However, the reform plan is forecast to have limited influence on Taiwan’s economy, a National Development Council analysis showed.
Photo: CNA
The tax cuts are expected to increase personal disposable income and spur domestic consumption in the US, which would stimulate Taiwan’s exports to the US in the short term, but whether it would turn into long-term export growth remains to be seen, the council said.
For every 1 percentage point growth of the US economy, there is a 0.15 percentage point increase in Taiwan’s exports and a 0.07 percentage point of growth of Taiwan’s economy, the council said.
The tax reform plan could influence the global strategy of large-scale Taiwanese businesses, prompting them to set up manufacturing bases in the US, but the policy’s affect on small and medium-sized enterprises would be limited, it added.
Taiwanese manufacturers, with a high-degree of automation, can adjust to the highest workforce costs in the US, the council said.
Major conglomerates such as Hon Hai Precision Industry Co, known as Foxconn Technology Group outside Taiwan, and Formosa Petrochemical Corp have announced large investment plans in the US in response to the tax reduction, the council said.
The US is Taiwan’s seventh-largest foreign investor, and most US businesses investing in Taiwan, such as Costco and Applied Materials, are tapping into the domestic market or supply chains, so they are not expected to withdraw from Taiwan back to the US, the council said.
The tax reform plan, coupled with a trade war between Washington and Beijing, could see Taiwanese businesses relocate from China to the US, Southeast Asian nations or back to Taiwan, thereby reducing Taiwan’s reliance on China, the council said.
Lai ordered the Cabinet to increase efforts to reach bilateral tax agreements with the US to eliminate trade barriers, such as double taxation, while increasing the mobility of personnel, capital, technology and merchandise.
Improvements have to be made to advance Taiwan’s investment environment amid a possible surge of international companies relocating to the US, Lai said.
To improve Taiwan’s competitiveness, a stable supply of electricity, water, land and skilled workers has to be maintained, while restrictions on financial laws have to be lifted to encourage private-sector investment, the council said.
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