The Finance, Budget and Final Accounts Committee of the Legislative Yuan has tentatively approved a draft local taxation law, providing a legal basis for local financial autonomy. In the future, special municipal, county and city governments may independently levy temporary taxes, special taxes, and other additional taxes based on local financial needs.
While the legislative intent of the law may be lofty, most local government heads do not appreciate it. They feel reluctant about levying additional taxes when the economy is in such a deplorable condition. The central government must want local governments to play the villain, they believe.
While the economy may be bad, and the timing of the law poor -- making it unlikely that local governments will begin levying taxes soon -- if enacted, the new law will nevertheless be an important measure.
In the past, both power and financial resources were concentrated in the hands of the central government. Most taxes were levied by the central government. Funds from taxes levied at the local level could barely pay for the regular expenses of local governments, not to mention local development. Local governments had, therefore, to rely on handouts from the central government. In the past, the central and local governments fought over subsidies every year. The central government has trouble trying to fairly distribute the subsidies among the local governments as well.
Once the local governments enjoy more financial autonomy, they will have more opportunities to find sources of income at the local level and levy taxes based on the unique circumstances of each city or county. For example, a local government may levy new taxes for special development projects or products, and use the funds for the promotion of environmental protection or other important local affairs.
Local taxation is an important part of local autonomy under the Constitution. However, the central government passively put it on the back burner by failing to enact the needed laws. Once complete local autonomy is restored, a legal basis will exist to deal with, for example, the complaints against the Hsinchu City Government's levying of special taxes on firms in the Hsinchu Science-based Industrial Park.
In view of the fact that counties are the smallest autonomous units provided by the Constitution, to avoid the confusion caused by different taxes being levied by different local governments, and to set the stage for future appointment of rural and urban township commissioners, the new law does not authorize taxation by rural and urban townships.
In the past -- because most large-scale developments depended on the helping hands of the central government, as insufficient taxes were collected at the local level -- the performance of county commissioners depended almost entirely on how much money they were able to get in subsidies from the central government. By allowing local financial autonomy, however, a local government head's performance will be rated instead by how he or she finds new sources of income, plans and implements development projects, as well as their ability to invite local investment. This is a more fair and reliable way for rating performance. The central government can even give out rewards in accordance with the local governments' successes in finding new sources of income, which will help establish a healthier mode of interaction between the central and local governments.
The enactment of the new law, if passed, will not cure all the financial ills at the central and local levels. It will, however, be the first step toward solving the problem. The central government should further think about how to divide taxation so that local governments can enjoy even more financial autonomy.
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