Taipei tax cut – inviting capital back onshore

Asia's export-dependent economies are especially vulnerable to slowing world growth. That doesn't mean governments have to stand by helplessly, says the Wall Street Journal.

Witness Taipei, which is proposing capital-inviting tax cuts:

The cabinet's plan, announced last week, is to convert the inheritance tax to a flat rate of 10 percent from the current 2 percent to 50 percent range and increase the amount of inheritance exempt from any tax.

The move would encourage more taxpayers to bring their savings and investments back onshore -- boosting domestic liquidity and consumption and generating employment in the high-paying wealth-management and investment-fund sectors.

The plan also would increase the standard deduction on the personal income tax, effectively reducing household tax burdens.

The proposal is a sign President Ma Ying-jeou may be getting back on track with a reform agenda that has drifted lately. After quick progress on cross-Strait economic ties, his administration, which took office in May, has failed to lay out a clear vision of what comes next. Taxes are a good place to start, says the Journal:

Taiwan's corporate income tax rate is 25 percent, but Hong Kong's is 16.5 percent and Ireland's is 12.5 percent.

President Ma has convened a panel to study tax reform. Investors will be looking for signs the tax-cutting momentum will continue.

With the global economy in trouble, fortune will increasingly favor the bold reformers. So will voters. President Ma's government appears to realize it's better for Taiwan to be ahead of this curve than behind it, says the Journal.

Source: Editorial, Taipei Tax Cut; Inviting capital back onshore, Wall Street Journal, October 17, 2008.

For text: http://online.wsj.com/article/SB122418362691141589.html

For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20

FMF Policy Bulletin / 21 October 2008