MOEA proposes cutting levies for commodities

Reactions are mixed over news that the government may scrap the commodity tax (貨物稅) in order to boost investment.

A Chinese-language newspaper reported yesterday that the Ministry of Economic Affairs is proposing along with the Council for Economic Planning and Development a plan to abolish the commodity tax.

The ministry and council hope doing away with the tax will help revitalize battered traditional industries and increase job opportunities, the paper said, without citing sources.

The goals would be achieved by also providing five-year tax breaks for new investment in traditional manufacturing and related technical services, the government hopes.

The abolition of the commodity tax was among the major recommendations made by participants at the Economic Development Advisory Conference (經發會) in late August.

The elimination of the tax would lower production costs, benefitting companies in the automobile, natural gas, gasoleum, steel, glass, cement and home appliances industries.

"The proposed tax cut [should it be carried out] will help boost domestic investment, which in turn will generate more tax revenue," said TSU Legislator Huang Chung-yuan (黃宗源). "One such example is the halving of land value incremental tax (土地增值稅) for a two-year period, which has partly helped revive the sagging property market."

By levying no commodity tax, Huang said he believes many traditional industries would be willing to increase the amount they invest in Taiwan instead of moving overseas.

But others such as Chi Schive (薛琦), president of the Taiwan Academy of Banking and Finance (台灣金融研訓院), worry that cutting the tax will put a strain on government coffers if no accompanying measures are adopted.

"In order to make investment more possible, the commodity tax should be abolished," Schive said. "But in view of the country's current fiscal difficulties, whether the government can come out with a comprehensive plan to cover the revenue shortfall is more important."

To make up the revenue shortfall, Schive suggests the government impose the so-called "luxury tax" on some expensive items or a "sales tax" for everything except food.

The Ministry of Finance opposes the move to axe the commodity tax. The ministry instead plans to propose a conditional concession by replacing the current commodity tax on oil products and automobiles with the "environmental tax," the report said, without elaborating.

According to government statistics, oil products and automobiles generate nearly 90 percent of total commodity tax revenue each year.

In 2001, commodity tax revenue amounted to NT$133.8 billion, with NT$80.8 billion coming from oil products and NT$33.5 billion from the automobile sector.

"In the short term, the proposed tax removal may help benefit the domestic economy," said Hsu Sung-ken (許松根), an industry economist at the Academia Sinica. "But what if it doesn't? Where is our back-up plan to cover the lost tax revenues? We haven't heard that from the government yet."