Fri, Nov 22, 2002 page10

• Local taxes may not rise because of voters' voices

  TAX REGULATIONS Although new government rules now allow local governments to levy taxes, politicians are reluctant to make any move that will anger citizens

  • By Joyce Huang / STAFF REPORTER
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  Despite legislative approval, there is little room for local governments to levy new taxes to fill their cash-strapped coffers during the current economic downturn, pundits said yesterday.

  "To levy new [local] taxes is sure to trigger a backlash from already economically overburdened residents and businesses, who may later try to unseat heads of local governments with their votes," said Huang Yao-huei (黃耀輝), an associate researcher with the independent Chung-Hwa Institution for Economic Research.

  Huang expressed doubt over whether the new taxation scheme, proposed in 1994 during better economic times, will actually be materialized now, saying "timing of the decade-old law's passage is belated."

  President Chen Shui-bian (陳水扁), in his pre-election promise, had vowed not to raise any taxes during his tenure. Huang believes local governments officials are unlikely to go counter Chen's pledge.

  On Tuesday, the legislature passed the general local-tax statute (地方稅法通則), allowing local governments to impose special taxes and transitional taxes lasting two to four years should local councils approve. Local governments may also tack on up to an additional 30 percent to central government taxes according to the revised statute. The new law, however, forbids taxation by local governments on public utilities and natural resources -- such as water, gravel, and mineral products -- that are exported to neighboring cities and counties.

  The restrictions have stifled hopes of many local governments to jointly levy taxes on water, triggering opposition from Taoyuan, Miaoli, Nantou, Pingtung and Kaohsiung Counties. Many of these regions' waterways have been polluted for decades by industry, and saw the tax change as an opportunity to generate capital to cover clean-up costs.

  But an official from the taxation department under the Ministry of Finance, who asked to be identified only by his surname Tsai, said yesterday that the new revisions will greatly benefit local governments by "providing a legal footing for them to enjoy taxation and fiscal autonomy."

  Acceptance of the new law is not mandatory, Tsai said.

  "There is much room for new taxes to finance public works if heads of local governments are willing to put aside their concerns for votes," Tsai said.

  But Huang disagreed.

  In an open economy that respects the principle of market mechanism, tax cuts are usually used as incentives to attract business, he said. Raising taxes, on the contrary, will scare away businesses and consumers, which is particularly true in smaller local economies that have less "market power," Huang said.

  "Local governments are already in competition with one another to attract businesses by using tax incentives," Huang said.

  The tax specialist, therefore, said that only local governments that own products with "monopoly power" are confident of retaining businesses and customers while levying new taxes, such as Taoyuan's international airport tax and the hot-spring tax in Peitou.

  Lee Sush-der (李述德), director of Taipei's Bureau of Finance, agreed, saying that it would be inappropriate for local governments to raise taxes while the central government has lowered the business tax and the incremental tax on land value.

  Following the law's passage, Lee said that Taipei has no plans to levy any new taxes, but has started charging administrative fees on users of public assets, such as cable and fixed-line telecom operators, to replenish the city's coffers.

  Ou Mei-hwan (歐美環), director of Taoyuan's Bureau of Finance, on the other hand, said that the county's plans to create a new tax base is about tax justice, not tax income.

  She said that it's only fair to compensate county residents for a living environment that has been polluted by the airport users for many years.

  "New tax revenues will be allocated to budget special projects to promote a better quality of life," she said.
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