Mon, Aug 11, 2008 page12

• Tax reform team aims for GDP growth

  • By Crystal Hsu / STAFF REPORTER
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  Faced with what it called an “impossible trinity” of pursuing wealth distribution, financial health and economic growth, the tax reform committee will focus on stimulating economic growth, Vice Minister of Finance Chang Sheng-ho (張盛和) said.

  Since its creation in late June, the committee, tasked with drawing up proposals to improve the tax system, has been struggling to strike a balance between promoting more equitable wealth distribution and a more attractive environment for domestic and overseas investors.
  
  

  Chang said on Friday the committee would prioritize bolstering economic growth, hoping that the strategy would also lead to healthier state coffers and help the lower class.
  
  

  The committee came to the realization that it must focus on a single goal or risk not accomplishing anything, Chang said.
  
  

  Since a fairer tax system, economic growth and financial health is “an impossible trinity,” committee members agreed that pursuing tax reforms to help Taiwan compete with Hong Kong, Singapore and South Korea for foreign capital was most urgent, Chang said.
  
  

  Chang hinted the committee would therefore not push the government to tax securities gains, since none of the three economic rivals imposed the levy.
  
  

  “By assigning more weight to economic growth, the government can take better care of disadvantaged people and the nation’s financial health,” Chang told reporters on Friday evening.
  
  

  Some proponents of tax reform focused on a fairer system suggest reinstating capital gains taxes, including a levy on stock transactions. The committee said on July 31 it would look into the option, after which the TAIEX dropped for two consecutive days.
  
  

  Chang said the committee realized that tax reform should take public opinion into account and seek to bring the tax system in line with global trends.
  
  

  “Reform proposals that have a negative impact on the stock market have little chance of being implemented,” the vice minister said. “The committee cannot ignore their potential political implications.”
  
  

  Taxing securities gains would pose a challenge, as most stock traders are individual investors without transparent transaction records and dummy accounts further complicate the issue, Chang said.
  
  

  More than 90 percent of individual traders have lost money on the stock market, Chang said, adding that the state coffers would suffer if the government abolished the securities transaction tax and levied capital gains instead.
  
  

  Economic growth is important for enhancing the nation’s financial health and welfare benefits for the poor, he said.
  
  

  “Since the committee cannot have it all, members believe it should seek to take care of as many people as possible,” Chang said.
  
  

  For that reason, the committee has proposed cutting income taxes for low and middle wage earners and lowering corporate income and business taxes, he said.
  
  

  The committee is scheduled to convene its third plenary meeting next week and will discuss potential measures to compensate for restoring income tax on military personnel and elementary and junior high school teachers, the vice minister said.
  
  

  Chang said the reform had good chances of succeeding if the Ministry of Education bows to teachers’ demands and cuts their workload without lowering their pay.
  
  

  This would cost the ministry NT$600 million (US$193,000) a year to supplement its work force, a price tag Chang called acceptable.
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