Mon, Feb 02, 2009 page11

• Politics derails tax reform panel

  The government established the Tax Reform Committee last June to overhaul the tax system by making it more favorable to economic growth and improving the distribution of wealth. But several committee members have quit over what they said was a lack of respect shown by the government. Tseng Chu-wei, deputy committee convener and public finance professor, discussed the uproar with “Taipei Times” reporter Crystal Hsu on Jan. 20

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  Taipei Times: As deputy convener of the tax reform committee, are you satisfied with its performance thus far?

  Tseng Chu-wei (曾巨威): Since its creation last summer, the committee has not functioned smoothly or carried out tax reform as hoped. The composition of the committee makes consensus building among members very difficult, if not impossible.

  The committee consists of 20 members and 30 advisers. The latter group, mostly business representatives, was meant to serve as figureheads on the committee but have ended up dominating its agenda. Cashing in on their massive financial resources, they took their appeals to the media to sway public opinion and got the government to lower the inheritance levy and retain tax preferences after the Statute for Upgrading Industries (促產條例) expires this year, among other things.

  

  National Chengchi University public finance professor and deputy covener of the Tax Reform Committee Tseng Chu-wei is pictured in this Dec. 6, 2006 photograph.

  PHOTO: CHEN TSE-MING, TAIPEI TIMES

  The government apparently has preset stances on reform issues and is using academics to endorse its policy. Not surprisingly, academics find that disappointing. Some of them quit the committee in protest while others chose to remain silent while attending the meetings.

  TT: Some people say the tax reform is little more than political theater. Do you agree?

  Tseng: I don’t blame such criticism. Even the legislature recently passed a resolution demanding the committee disband to end the drama.

  The government has been under heavy pressure to boost the economy. It may go ahead and cut taxes to spur economic growth as it sees fit, but it must not expect academics to back its moves unconditionally. It remains to be seen if the tax cut can induce capital repatriation as claimed.

  I believe tax cuts without supporting measures are harmful to the nation’s long-term fiscal health and social fairness.

  To avoid that, some academics suggested earlier that the government suspend the task force and put off the reform until the current economic crisis is over. But government officials rejected the idea for fear of being accused of ineptitude. Instead, the government decided to extend the tax committee’s term from one year to a year-and-a half — which I’m afraid will prove futile in ending the predicament.

  TT: What tax reform do you think the country needs the most?

  Tseng: The system is fraught with loose and unfair tax preferences for the so-called emerging strategic industries. Their longstanding existence has distorted the distribution of wealth, created great burdens on the Treasury and increased government debt. Under the system’s protection, high-tech firms do not have to pay taxes no matter how much they earn.

  The nation’s tax rate stands at 13.7 percent of GDP, a figure that is relatively low compared with advanced countries, where the tax rate accounts for 25 percent of GDP. But the public by and large feels the tax burden is heavy.

  The problem lies in the unfair distribution of the tax burden. The bulk of it falls on middle-income earners.

  TT: In Taiwan, only the rich qualify for tax preferences while the average person has no access to tax breaks or tax-saving measures. What would you recommend the government do to address the issue?

  Tseng: I doubt it has the nerve or resolution to axe the tax breaks because interest groups would protest such a move.

  To placate the business community, the government agreed to cut corporate income tax from the current 25 percent to 20 percent and retain some tax benefits after the Statute for Upgrading Industries expires.

  President Ma Ying-jeou (馬英九), whose political party [the Chinese Nationalist Party (KMT)] also has a majority control of the legislature, has a great opportunity to make the tax system more reasonable and favorable to economic growth, if he is bold enough to carry out reform. If he fails to take advantage of it, the opportunity will pass him by.

  However, the government is preoccupied with saving the economy and has put tax reform on the backburner, although it refuses to admit it.

  TT: Would you elaborate on the concept of “localization” in the reform effort?

  Tseng: By localization, I mean the government must be aware that the reform is intended to work out a system that meets the country’s needs. To that end, the government can learn from other countries but it must not constantly compare their tax rates.

  For instance, Hong Kong and Singapore both abolished their inheritance tax and some have suggested this country should do the same. But tax reform involves more than setting tax rates. If all it took were tax cuts to fix the economy, the nation would not be in recession.

  The truth is that tax cuts alone cannot lift Taiwan’s competitiveness or economic growth.

  TT: What will happen to the tax reform committee for the rest of the year?

  Tseng: I offered to quit but the government asked me to stay. My departure would deepen the impression the committee is in disarray, I guess. I had hoped to serve as a bridge between the government and academics, but to no avail.

  The government has achieved almost all it wants — lowering inheritance tax and keeping the Statute for Upgrading Industry partially alive.

  I chose to stay on in the hopes of introducing an earned income tax credit for the working poor. Ma included the idea in his campaign platform and I will try my best to realize it.

  I don’t mind if the committee ends up a total failure as long as I can push through this reform.
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