The various preliminary meetings all entered their concluding stages this week, before the proposals are presented for ratification at the economic development conference being organized jointly by Taiwan's public and private sectors. Participants are expected to have divergent ideas with regard to tax-cutting measures, the relaxation of restrictions on cross-strait trade, investment and transportation links, and numerous other topics.
Of these, the above-mentioned issue of corporate deferment of the tax on companies' retained earnings looked set for a particularly intense showdown, with business representatives urging the government to amend the existing Income Tax Law to defer the tax for five years. Finance Minister Ho Chih-chin said he had strong reservations about the proposal, however, as it would increase the government's costs in levying taxes, raise bookkeeping expenses, create potential tax loopholes and make billions of dollars of tax money unavailable to the cash-strapped government, thus affecting government budgets for years to come, unless alternative sources of income can be found.
Ho said that the bottom line his ministry could accept was a one-year deferment, delaying between US$620 million and US$770 million of tax revenues annually. Deferment for five years could mean upward of US$3 billion being made unavailable to the government, Ho noted.
The Finance Ministry appeared to be willing to support other proposals put forward at the preparatory meetings. These included allowing businesses to enjoy tax deductions when meeting local-hire percentage requirements, eliminating investment incentives for industries with heavy energy consumption, increasing similar incentives for inbound investment in the service sector, and permitting businesses to enjoy tax deductions for overseas research into consumer behavior and marketing distributions.
Participants at the preparatory meetings failed to reach at a consensus on the issue of removing the cap limiting Taiwanese business investments in China not exceeding 40 percent of company capitalization. Industry representatives, such as delegates from the Taipei-based Chinese National Federation of Industries, supported removing this restriction for companies with capitalization below US$154 million. They also suggested that China-bound investments of up to US$60 million should be spared the hassle of going through the ROC government's current review and approval process.
Taiwan Solidarity Union lawmaker David Huang opposed these proposals, saying that further relaxation of restrictions against China-bound investments should wait until China denounces the use of force against Taiwan.
Another widely supported proposal to open up direct cross-strait transportation links while adhering to the principles of safety, equality and dignity also met with opposition from Huang and other lawmakers. Huang said that so-called normalization of such links should not be done before national security issues are addressed. Democratic Progressive Party Legislator Wang To-far noted that Taiwan's sovereignty and safety have higher priority than cross-strait transportation links.
In a related development, President Chen Shui-bian used his July 13 e-newsletter to reassert his "proactive management, effective liberalization" policy governing cross-strait trade. He attributed the rise of Taiwan's unemployment rate to business investments in China, which further contributed to the hollowing out of industries, dampening of Taiwan's economic prospects and widening of the existing gap between the haves and the have-nots.
Chen also raised four criteria by which to examine whether the Conference for Sustaining Taiwan's Economic Development should be considered a success: Will it increase Taiwan-bound investment, create employment opportunities, reduce the rural-urban divide, and close the gap between the rich and poor?
Regarding Chen's remarks, Executive Yuan Spokesman Cheng Wen-tsang said issues concerning cross-strait trade are indeed controversial, which is exactly why the economic development conference must convene to attempt to reach agreements on various topics relating to Taiwan's economy and businesses' survival and development.
Cheng noted that ongoing policies will continue. These include the normalization of cross-strait charter flights, acceleration of cross-strait cargo links, permission for Chinese tourists to visit Taiwan, and expansion of the "mini-three-links" between China and Taiwan's outlying islets of Kinmen, Matsu and Penghu.