MOF mulls raising business tax

The China Post staff

The Ministry of Finance said yesterday it will consider hiking business tax in order to allow the Ministry of Economic Affairs to lower commodity tax or scrap it altogether for certain goods.

The national coffers will net around NT$60 billion in tax income every year if the business tax is raised to seven percent from five percent now as the finance ministry suggested, United Evening News reported. This can also partially make up for the shortfall left by the economic ministry’s proposal, the paper said.

Minister of Finance Yen Ching-chang already told Lin Hsin-yi, minister of economic affairs, that the finance ministry will work out measures to offset any negative impact by lowering or cutting commodity tax on the treasury, the paper said. But Yen’s deputy seemed to have different opinion. Sean Chen, vice finance minister, said replacing commodity tax with business tax is part of the long-term planning of the government.

Analysts have long criticized the government for the double-taxation policy, under which business tax and commodity tax are imposed on the same goods.

Nonetheless, whether raising business tax will be a feasible option to offset the negative impact of lowering or canceling commodity tax has yet to be discussed.

Sam Wang, deputy finance minister, would not comment on the viability of raising business tax amid an economic downturn. United Evening News quoted unidentified sources at the finance ministry as saying that hiking business tax is doomed to hurt private consumption, in particular when the economy is in such a position. According to the paper, the business tax has stayed at five percent over the past decade or so.

Under a law promulgated in May 1988, the government is allowed to adjust the tax as long as it remains at a range of between five percent and ten percent, the paper says.

Over the past few years, government earned between NT$180 billion and NT$190 billion each year in business tax income, according to the paper.

The Ministry of Finance is gearing up to work out related measures so as to allow the economic ministry’s proposal to pass through the next legislature session, due to start September.

Adjustment of business tax will require no law revision but that of commodity tax will need a go-ahead by the legislature. The Ministry of Economic Affairs proposed Thursday to slash or scrap tariffs on a range of imported commodities in order to stimulate domestic spending and help Taiwan attract foreign investments.

During discussions being held in coordination with the economic development advisory council Wednesday, the economic ministry said it intended to halve Taiwan’s commodity tax and eliminate others within a two to three year time period.

The commodity taxes, which have been in place since 1946, primarily target eight types of imported goods, including cars, oil, cigarettes and alcohol, electrical appliances, and cement.

Economic officials said Thursday while the policy may have acted as a sort of luxury tax 55 years ago, in today’s environment this policy is no longer necessary.

Business people hailed the economic ministry’s proposal, but voiced worries raising business tax may bring about formidable negative impact. The Council of Economic Planning and Development, the island’s official economic planning agency, said adjusting the taxation policy will require a good deal of wisdom and any rash action will be unfavorable. According the Directorate General of Budget, Accounting and Statistics’ calculation, raising the business tax by one percentage point will bring consumer price up 0.44 percent.

That means the finance ministry proposal will result in heavy inflationary pressure as consumer price may go up 0.88 percent under the proposal.

Such inflationary pressure could easily move beyond this calculation, the paper said.