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MOF announces plan to tackle rising public debts
Taiwan News, Staff Writer
2014-02-24 08:49 PM
The Ministry of Finance (MOF) has announced a detailed plan Monday afternoon on controlling public expenditure and raising revenue through tax reform to tackle the rising public debts from the central and local governments. The plan is aimed at narrowing down the state budget deficit as the public debt is to hit the ceiling and at improving local authorities' budget discipline. Finance Minister Chang Sheng-ford stressed in a press conference that a “feedback tax” will be “levied from minority” and “spend on majority” including the 6.6 million salary earners and 0.5 million of the disabled.

“Feedback tax”

Five percent business tax for bank/insurer - As part of the measures to restore the country’s fiscal health, the new plan demands an increase of business tax paid by financial institutions to five percent from the current two percent. To limit the adverse impact of tax hike, only the banking and insurance sectors are subject to the change. The securities, futures, bill financing, and investment trust firms are left untouched. The rationale behind the tax hike on banking and insurance sectors is to resume to the level levied before the 1997 Asian financial crisis as both have now embraced strong earnings and it’s time to make a change. The government cut the tax for financial institutions to 2 percent from 5 percent during the crisis, and the rate remains unchanged ever since, which makes the duties appear relatively lower given the profit growth in the financial businesses of the recent two years.

A new 45 percent tax bracket for the wealthiest - The wealthiest will also face higher tax rate under the new plan. Chang announced that a new bracket will be created for those whose annual net income exceeds NT$10,000,000 (US$330,000). People in this new bracket will be subject to the 45 percent of tax rate from 40 percent. An estimated 9,500 people are expected to be affected in this plan.

Revised tax credit policy - In addition to the tax hike, the government is also considering raising the taxable amount of stock and cash dividends for domestic individual shareholders (domestic institutional shareholders remain unchanged) but reducing the taxable amount for salary earners and the disabled.

The plan will be implemented in a bid to control the debt-to-GDP ratio to 38.6 percent (current level is estimated at 38.4 percent) while putting more efforts on tax fairness. In the press conference, Chang stressed that the government is not intended to put a heavy tax burden on businesses and individuals, and the reform plan is made after the study of the tax levied in Japan, the U.S., and other advanced economies. Chang added that the tax breaks will be implemented for mid- and small-businesses which increase employment and the budget on research and development.

Put a straightjacket on spending

The new plan not only aims at raising the revenue but also ties a string on the government’s wallet by setting up a cabinet-level spending review panel led by Vice Premier Mao Chi-kuo. Also, the authorities will review the efficiency of state-run businesses along with other public spending and revitalize the national assets. At the same time, the local governments will be asked to reduce the reliance on state funding through a number of reforms.

Premier Jiang Yi-huah threw out the ideas at the Legislative Yuan last Friday stressing there is a pressing need to re-evaluate the business tax, corporate income tax, and alike. Shares in Taiwan lost ground Monday, dragged by financial stocks after the government revealed the possibility of raising the business tax on financial institutions as part of a fiscal reform package to help narrow the country's budget deficit. The weighted index on the Taiwan Stock Exchange closed 41 points lower to settle at 8,560 on turnover of NT$85 billion.

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