Sat, Aug 07, 2004 page8

• Tax reforms a threat to sovereignty

  • By Huang Tien-lin黃天麟
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  After an unidentified official hinted that the government would reimpose the securities income tax on the morning of July 20, public anxiety led the stock market to plunge 163 points. The minister of finance made a personal appearance in the afternoon to clarify the matter, but the damage had already been done and the next day, due to continued lack of confidence, the market only recovered half of the previous day's loss. Some people believe that this was just an occasional instance of misinformation being released, but in fact the matter is not so simple.

  Anyone concerned with national politics will know that after the national elections earlier this year, those with pro-unification views and promoters of westward development have been most concerned with two issues: direct transport links and tax reform.

  To promote their cause, they have sought to brainwash the public and government officials with weekly seminars in which sympathetic scholars and officials take part, and by publicizing these seminars in full-page reports. They want to make people believe that "if Taiwan does not establish direct links it will be marginalized," and that "if Taiwan doesn't immediately reform its tax system, it will never achieve social justice."

  It hopes to seduce the government into policies that will benefit China and serve the interests of "unification through economic means." The news of a reimposition of the securities income tax that emerged on July 20 was a result of these efforts.

  Why are they suddenly so interested in tax reform? For proponents of westward development and unification, tax reform and direct links are inseparable and complimentary.

  Based on reports over the last few months in the pro-unification media, these people have two main demands with respect to tax reform: reimposition of the securities income tax and the abolition or reduction of preferential tax rates for upgrading industries. Naturally, they have included a number of less controversial demands as padding to blur their true intentions. (Media with a stronger Taiwan awareness have fewer reports and discussions about tax reform.)

  We all know pro-unificationists have consistently promoted the "three direct links" and closer economic ties with China. The reason is to create a situation in which cross-strait affairs are dealt with as domestic affairs, with Taiwan relegated to the fringes of a "Chinese economic sphere."

  As far as tax reform is concerned, if the preferential tax rates in the Statutes for Industrial Upgrading (產升條例) are abolished or reduced, and if a securities income tax is re-instated, this will accelerate the speed with which industries are leaving Taiwan for China and undermine Taiwan's capital market as a source of investment funding. Taiwan will become a marginal player in economic terms, facilitating the early realization of China's dream to annex Taiwan. For them, this is the true value of tax reform.

  To give justification to their "tax reform" measures and win public support, those favoring westward development have also sought to use the logic of "one China" in developing their argument. Their premises are:

  One, Taiwan's tax-to-GDP ratio fell from 19.4 percent in 1990 to 12.5 percent this year, which is lower than that of most major countries and therefore taxes should be raised.

  Two, the reason why the ratio has fallen is because the government has given certain industries and sectors preferential tax rates that have undermined the tax base and this is a cause of serious inequality within the tax system. The conclusion is that it is essential to abolish or reduce preferential tax rates for upgrading industries and reimpose a securities income tax. After months of exposure, this policy is beginning to have an effect, causing the government to consider these two issues.

  I do not oppose tax reform and believe that the government has a responsibility to maintain a tax system that is equitable and complete. There are improvements that can be made, such as making income tax assessments based on both the individual and on the place of assessment, abolishing the additional 10 percent business tax on unallocated profits, increasing business taxes and abolishing the stamp duty. As for the reimposition of the securities income tax and the reduction or abolition of preferential tax rates for upgrading industries, however, we should take a long-term perspective, especially as, in recent years, these laws have served as a line of defense against China's economic pull and are preventing Taiwan from becoming marginalized economically.

  In assessing the quality of a tax system, we should not only be concerned about whether it is fair, but also how it contributes to the economy as a whole. Past experience has already shown us that terminating the securities income tax did not decrease tax revenue from securities transactions.

  Even though it goes against the principle that all income should be taxed, terminating this levy has stimulated the development of Taiwan's capital markets, which are an important source of funds for our industries. If one also considers the system of stock options for employees, this has contributed to making Taiwan a world famous information technology producer; these regulations have clearly proved successful.

  Since the Statutes for Industrial Upgrading have proved strategically effective in counter-balancing cheap Chinese labor and land, and keeping industry in Taiwan, we can accept the unfair competition created by these tax incentives as a necessary evil.

  It was 20-odd years ago that a former leader echoed China's call for "one China" without realizing his opponent's deeper strategy would lead him into a trap. It is this that has created the current difficulties for Taiwan's 23 million people. The scholars and officials who are echoing China's calls for "three direct links" and calling for "tax reform" are leading our economy into a new crisis.

  I sincerely hope that other scholars and officials will eventually perceive the deeper strategy that China is pursuing in seeking unification through economic means and not be misled or brainwashed by these pro-unification forces. They should pull back before they fall into China's trap, for only in this way will we be able to preserve Taiwan's economic sovereignty.

  Huang Tien-lin is a national policy advisor.

  TRANSLATED BY Ian Bartholomew

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