RTC funding subject of debate

Minister of Finance Yen Ching-chang (顏慶章) said yesterday that he opposes using business tax revenues levied from financial services to finance a US-style Resolution Trust Corporation (RTC) in helping the island's problematic financial institutions.

KMT lawmakers on Thursday proposed NT$140 billion be used to set up a RTC and suggested using the business tax revenue for financing. Yen said the ministry would like to use government budget to raise the funds for the RTC.

According to the KMT's proposal, NT$120 billion would be generated from a 2 percent business tax levied in the financial services sector over the next four years. However, since the tax rate for the financial services sector was dropped to zero at the end of last year in order to encourage domestic financial institutions to write off bad loans, Yen said that if the KMT's proposal is passed, it would be unfair for the financial sector.

"The reduction of the business tax on financial services sector was to abandon unreasonable consumption tax," said Yen. "If we use the tax revenue from the banking sector and use it as source of funding for an RTC, it might be acceptable to the banking industry, but it would be unfair to the insurance and securities industry."

President Chen Shui-bian's (陳水扁) administration late last year reduced a business tax on the financial services sector, which includes banks, insurance companies, securities companies and other financial institutions, from 2 percent to zero.

Yen suggested that a portion of the government's budget should be used to set up the RTC, instead of reimposing business taxes on the financial sector.

"Since reimposing business taxes on financial services is unfair [to sectors other than banking], we should use the government budget to set up the RTC," said Yen.

However, Legislator Chu Li-rin (朱立倫), who proposed the KMT's version of the RTC opposes Yen's idea to use the government budget to set up the RTC.

"Funding for the RTC should come from the financial sector itself, it's unfair to put the burden upon the general public," said Chu.

The finance ministry's version of the RTC draft is to raise money from government the budget to set up the RTC and it has been submitted the Legislative Yuan for review. Next week, the Legislative Yuan is going to review both versions.

"It's unfair for anyone to pay for another's debt," said Norman Yin (殷乃平), a banking professor at National Chengchi University. "But someone is going to pay for it ... Unless the administration can persuade legislators to use the government budget, there won't be many alternatives other than reimposing the business tax on financial institutions."