MOF wary of revenue-busting cuts

Premier Chang Chun-hsiung (張俊雄) said Thursday that unless complementary measures can be taken to ensure that total tax revenues stay the same, the administration would not accept proposals to cut taxes. The administration would do its best to defend the issue at a general meeting of the advisory conference to be held later this month.

According to Lin Chuan (林全), Director General of Budget, Accounting and Statistics, if the securities transaction tax is suspended for one year, central government tax revenues would fall by NT$82.2 billion in 2002, based on current government budget plans.

If the land transaction tax is cut in half, the government will lose tens of billions in revenue. Unless there are measures taken to generate new sources of revenue, it's not feasible to cut the two taxes, said Lin.

Following Chang's comments, President Chen Shui-bian's (陳水扁) blue-ribbon Economic Development Advisory Conference's (EDAC) finance panel passed the proposal to cut or cancel the commodity tax and -- to make up for the shortfall -- and raise the business tax (營業稅). The business tax is automatically added to the price of all goods and services sold in Taiwan.

Tax cuts were a controversial topic even before the EDAC took up the issue.

Following Wednesday's meeting of the EDAC's finance panel -- which previously proposed temporarily cutting the securities transaction and land transaction taxes -- the investment panel made another proposal to cut the commodity tax (貨物稅) on Thursday.

But whether the administration will accept any of these tax-cut proposals has been strongly questioned by government officials. Pundits said there should be a comprehensive study on tax reform before any tax-cut measure can be accepted.

The commodity tax proposal was made by Minister of Economic Affairs Lin Hsin-yi (林信義) and would affect items including household appliances, automobiles and petroleum. The minister also recommend that levies on rubber tires, cement, soft drinks and flat glass should be cancelled completely. Lin's proposal garnered nine votes from the 17 panel members attending the meeting.

According to the Ministry of Finance, commodity tax cuts would take NT$78 billion out of the government's coffers annually.

The panel's proposal to increase the business tax -- currently at 5 percent -- could increase tax revenues by about NT$40 billion a year for each 1 percent increase according to the finance ministry.

With a two percentage point hike of the business tax, a total of NT$80 billion could be increased, or roughly displacing proposed commodity tax cuts.

The legal ceiling for the business tax is currently 10 percent.

"What the government needs to do immediately is to conduct a comprehensive tax reform review, instead of discussing individual tax [measures]," said Sun Ke-nan (孫克難), a research fellow of Chung-hua Institution for Economic Research, who is a conference participant.

"Currently the proposals to cut land and securities taxes are more apt to decrease the tax burden on the rich. The consequence is that if these tax-cut measures are accepted by the administration, the tax burden of this country would fall mostly on salary-earners and the poor," he said.