Several lawmakers have proposed legislation to offer tax breaks for money repatriated by Taiwanese individuals and companies. Although the details have yet to be finalized, the basic idea is to levy a low, one-time tax on overseas funds to encourage local investment and improve the economy.
Since similar attempts have ended up with Taiwanese businesses pouring funds into the real-estate market instead of making actual investments, lawmakers this time have proposed restrictions on real-estate investments for three years.
To stress the legitimacy of their proposal, the lawmakers cited the net asset increase of US$16.42 billion in the nation’s financial account — which includes direct and portfolio investments — in the first quarter of this year: the 31st consecutive quarter of capital outflows, which brought aggregate net outflows to US$367.78 billion as of March 31.
According to their rationale, Taiwanese businesses have continued to shift funds abroad to cope with global supply-chain needs or to seek higher investment returns elsewhere.
If part of that money was returned home, it would help boost domestic economic activities, increase employment and raise wages, the lawmakers said.
The proposal comes at a time when many nations are adopting tax breaks or exemptions to attract foreign funds. For instance, the Indonesian government in 2016 launched a tax amnesty scheme in a bid to plug a large budget deficit, and a tax overhaul in the US early this year has seen several US multinational companies bring back money from abroad. Similar measures have been introduced by Japan, ASEAN members and some European nations.
However, Taiwan is not exactly short of funds. The central bank’s latest figures show that the monetary authority has increased sales of negotiable certificates of deposit to drain excess funds, exceeding NT$7 trillion (US$227.89 billion) early this month, from the money market.
The costs for corporate borrowers might not be higher than those of bringing money back home, given the already low interest rates here.
The nation has excess domestic savings, but faces other difficulties, such as obstacles to the domestic investment environment, weak corporate sentiment to increase local investment and a lack of good investment targets.
There is still no consensus on whether a tax break or a tax exemption on selected investment categories would attract capital inflows and spur economic growth.
In addition, the Ministry of Finance and the central bank have expressed concern that the proposed legislation, if enacted, could create an unfair tax environment, adding that the fund inflows could contribute to currency fluctuations and become a speculative investment on the local stock and real-estate markets.
However, the National Development Council, the Ministry of Economic Affairs and the Financial Supervisory Commission seem to be going along with the proposal, as far as long-term industrial development is concerned.
As more nations have over the past two years supported closing corporate tax loopholes and endorsed a common reporting standard to increase transparency, it is time for Taiwan to attract overseas funds back home.
The Ministry of Finance and the central bank have good reason to be skeptical of lawmakers’ wisdom in devising the legislation, but President Tsai Ing-wen’s (蔡英文) government as a whole does need to reach a workable policy to induce capital inflows and help invigorate economic activity.
The Cabinet must establish an inter-ministerial department to encourage the repatriation of offshore capital and devise complementary measures to curb speculation in property and other non-productive markets.
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