The government should overhaul its antiquated vehicle tax system, especially as Taiwan faces growing pressure from the US to reduce trade barriers amid the threat of a 32 percent “reciprocal” tariff on Taiwanese exports to the US. A logical starting point would be to reduce the excessively high commodity tax on vehicles, followed by a gradual lowering of tariffs on imported cars on a par with those levied by Taiwan’s trading partners.
For years, new car retail prices in Taiwan have been significantly higher than in many other countries. The reason is straightforward: Steep taxes on vehicles inflate retail prices and the overall cost of ownership. Despite this, the government has long resisted calls for reform. That stance is no longer sustainable. A comprehensive overhaul is long overdue.
Taiwan imposes duties of up to 52.5 percent on imported vehicles, comprising a 17.5 percent tariff, a 25 to 30 percent commodity tax and a 5 percent business tax, according to the Ministry of Finance. In addition, a 10 percent luxury tax is levied on vehicles with a retail price of more than NT$3 million (US$100,150).
Since joining the WTO in 2002, Taiwan has reduced its vehicle tariffs from 60 percent to 17.5 percent to meet WTO commitments. However, to protect the fragile domestic auto industry, it continues to maintain high import duties — 17.5 percent on vehicles, and between 8.1 and 15.8 percent on auto components. These rates are far higher than those of its major trading partners, including the US (2.5 percent) and Japan (zero).
Yulon Motor Co president Hsu Kuo-hsing (許國興) has said that abrupt or sweeping changes to these policies could significantly impact the domestic auto sector, which includes 2,500 manufacturers and supports about 300,000 workers and their families.
Lowering or removing the tariff to match the US’ 2.5 percent would erode the price competitiveness of locally produced vehicles, he said.
Another automaker said that vehicles and auto components make up less than 2 percent of Taiwan’s total exports to the US, so drastically cutting vehicle duties would do little to meet the US’ primary goal of reducing its trade deficit.
A more balanced and effective approach would be to cut the commodity tax, with current levies of up to 30 percent. Such a move would lower the cost of car ownership across the board, regardless of whether a vehicle is imported or domestically manufactured. This would offer fair benefits to foreign and local automakers alike.
The government could also consider easing import quotas on foreign vehicles. At present, Taiwan allows only 75 units of each US car model to be imported, a restriction that significantly limits market access.
The Ministry of Economic Affairs is reportedly considering reducing import duties on auto components and proposing a 50 percent cut in the commodity tax on vehicles. It is also proposing to phase out tariffs on imported vehicles entirely in 10 to 15 years, as support for a zero-tariff policy is gaining traction among different trade groups.
While these proposals appear sensible, they would result in a significant decline in tax revenue, an issue that requires approval from the Ministry of Finance. The ministry might not find the idea amenable, as it collected more than NT$130 billion last year from vehicle-related import duties and commodity taxes.
To strengthen Taiwan’s hand in negotiating lower “reciprocal” tariffs and alleviate the heavy tax burden on domestic car buyers, concerned government agencies should collaborate to reform the existing tax structure to better reflect the evolution of Taiwan’s industries.
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