Initially billed as a means to simulate industrial innovation and research and development, the draft Statute to Encourage Industrial Innovation has turned into yet another program to provide a "low cost" environment for Taiwan businesses with scant concern for the cultivation of long-term sustainable competitiveness based on high value added, robust product and service quality and creativity.
Initially approved by the rightist Chinese Nationalist Party (Kuomintang) Cabinet in May 2009, the draft bill was advertized as a means to promote research and development, innovation and manpower training and provide ways to solve the needs of business for capital and land.
Unfortunately, the content of the draft bill indicated that its conception had failed to abandon the addiction to preferential tax incentives featured in previous statutes for the encouragement of investment and for the encouragement of industrial upgrading.
Hence, the opposition Democratic Progressive Party countered with a proposal to drop all tax incentives and non-project related subsidies and replace such perks with a flat corporate tax reduction to 17.5 percent that would benefit all Taiwan companies and not only be available in substance to large and politically connected conglomerates.
Besides opposing articles that opened the door for real estate speculation under the guise of "industrial parks," the DPP proposed concrete mechanisms directed at boosting local industry through calls for a NT$100 billion fund to assist troubled or traditional industries, the institution of a "Made in Taiwan" certification program and the drafting of industrial adjustment plans before signing international trade pacts.
Besides rejecting most of these initiatives, KMT Premier Wu Den-yih trumped the DPP on the controversial tax front Tuesday morning by announcing that the Cabinet would propose a corporate income tax cut to 17 percent from the current 20 percent in reaction not to the DPP's initiative but based on Singapore's 17 percent business income tax rate.
The new proposed cut will follow a reduction to 25 percent in September 2008 and to 20 percent in March 2009 and comes despite of declarations by the Finance Minister Lee Shu-teh that a further cut would be "unfeasible" given Taiwan's worsening fiscal crisis. Not surprisingly, Lee's attempts to reassure citizens that the anticipated loss of NT$34.3 billion in tax revenues "will not hurt" Taiwan's central government finances appeared strained.
Wu's announcement that the Cabinet would propose a corporate tax cut to 17 percent aimed to give the impression that the difference between the KMT and DPP versions only concerned "0.5 percentage points" and that the DPP should therefore give up its opposition to the statute.
Thanks to the KMT's gambit, the DPP's proposal for a corporate tax cut to 17.5 percent has clearly backfired by diverting attention away from the fundamental problems in the draft statute and apparently compromising the opposition party's attempt to portray itself as an advocate for Taiwan's middle and working classes, farmers and small businesses.
Ironically, the DPP will not receive much credit from the business community for proposing a corporate tax cut to 17.5 percent that has been superceded by the KMT's even more generous use of the taxpayer funds to benefit Taiwan capitalists.
Nevertheless, while the KMT premier's announcement undoubtedly aimed to put the DPP on the defensive, it lost in accuracy what it gained politically.
After all, the difference between the two parties concerns more than a "mere 0.5 percent" but the more substantial gap between 17.5 percent without R&D tax incentives and employment subsidies and the KMT's 17.0 percent tax rate with R&D tax breaks and employment subsidies and the differing policy intentions behind the two figures.
The DPP's intention was to move a step toward the elimination of preferential treatment for conglomerates by doing away with all such differential incentives and to incorporate substantive mechanisms to protect the interests of Taiwan-centric industries and companies.
However, in both the bill's drafting and related legislative consultations, the KMT has demonstrated that the ruling party has no intention of abandoning such favoritism and remains committed to cooperating with short-sighted business demands to create an even more favorable climate for the obsession of most Taiwan business leaders with "cost-down" management strategies instead of boosting value or quality.
Besides the knee-jerk decision to cut the corporate tax rate to 17 percent, the KMT premier also let slip his government's intention to comply with calls by some businesses to "delink" the wages of Taiwan's 300,000 plus migrant laborers from the national basic monthly wage of NT$17,280.
The termination of "national treatment" for foreign workers would put Taiwan in violation of long-standing International Labor Organization covenants and the just ratified International Covenant on Economic, Social and Cultural Rights and would inevitably push down wages(and thus domestic consumption) in Taiwan.
In sum, this draft statute should be returned to the drawing board for more brainstorming among business, labor and government on truly innovative measures to boost business creativity instead of tax and wage cuts.
Source: Taiwan News Online - Editorial 2010/04/14
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