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Commercial Times: Potential effects of tax hikes
Central News Agency
2014-05-06 11:24 AM
Last week, the Legislature's Finance Committee approved several bills that would raise taxes and increase government revenue by an estimated NT$65 billion (US$2.15 billion) per year. Finance Minister Chang Sheng-ford described them as "emergency" measures to stop financial bleeding. The description is not at all exaggerated. Though Taiwan does not have any foreign debt, it has accumulated NT$7 trillion in public debt, with government budget deficits running at NT$270 billion to NT$300 billion annually. If the NT$17 trillion in long-term unfunded liabilities, mainly for retirement programs, are taken into account, the government's liabilities total NT$24 trillion, which is equal to 160 percent of Taiwan's gross domestic product. Without any structural adjustment to the government's finances, however, the latest plan can only serve as temporary relief for the worsening ailment. One of the tax increases would restore the business tax rate on the gross receipts of financial services institutions from the current 2 percent to 5 percent. Since the tax rate was lowered 14 years ago, the government has lost an estimated NT$760 billion in revenue. Restoring it to previous levels will simply stem the revenue loss. Another measure involves cutting the tax credit on cash dividends given to individual shareholders by up to 50 percent. This is expected to add NT$40 billion per year to government revenues. Reducing the tax credit might help stop the financial bleeding but could also create several problems. It would undermine the spirit of the integrated tax system that is aimed at eliminating double taxtion on a company's earnings and could be unfavorable to long-term investors and hurt companies, potentially leading to a capital exodus. Financial bleeding is a problem that has existed for years and cannot possibly be cured at once. Fixing the fiscal crisis requires a comprehensive and fundamental effort that involves not only plugging revenue shortfalls but also controlling and managing public debt properly and adjusting the government's expenditure structure. (Editorial abstract -- May 6, 2014) (By Y.F. Low)
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