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Economics Minister Shih Yen-shiang

Two Engines to Make Taiwan Take Flight

Two Engines to Make Taiwan Take Flight

Source:Chieh-Ying Chiu

In the following exclusive interview, Minister of Economic Affairs Shih Yen-shiang makes a case for the new Statute for Industrial Innovation, as a tool to reinvigorate conventional industry, and ramp up the island's economy.

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Two Engines to Make Taiwan Take Flight

By Rebecca Lin
From CommonWealth Magazine (vol. 445 )

There are many factors that play a role in attracting foreign investors. The Industrial Development Bureau once asked foreign corporations whether taxation is important. Many responded that taxation is not everything, that the business environment is even more important.

My take on the environment side is that for Taiwan the signing of ECFA with China, the signing of free trade agreements (with other nations), the opening of distribution routes and trade with other countries is probably more important than tax issues, because that's the only way we can ship our products to other countries using Taiwan as a base.

But on the other hand, the Department of Investment Services asked foreign companies what the government should do first of all to improve the business environment. And whether they were foreign companies or Taiwanese companies in China, they all responded that tax cuts were one of the most important things to tackle.

Of course, it would be impossible to calculate how many foreign investors would be attracted by lower taxes or how many China-based Taiwanese businesses would return to Taiwan. There's no model we could use. But there are empirical data showing that every U.S. dollar in tax cuts generates 1.5 to 2.5 U.S. dollars worth of economic stimulus.

In the past the corporate income tax rate for conventional industries stood at 25 percent. Yet because of the many tax deductions on investments we gave to high-tech companies, they may have paid as little as 5 percent. It was 10 percent on average.

Right now, the biggest changes brought about by the Statute for Industrial Innovation are the changes to the tax system. The government no longer picks the winner among the industries. As Taiwan's industry has developed to the current stage, everyone should compete based on their respective strengths. That's a very important foundation.

Next comes what the people get out of it. About 80 percent of our citizens are company employees. Doesn't this mean that company profits are also profits for all citizens? We can't completely equate the two, but we must also not completely separate them from each other. Companies share their profits with their employees. Corporate profits are also shareholder profits, which again benefit the giant number of citizens who own stocks.

Is the purpose of the new statute to create an investment environment for after ECFA has been signed? The two are related, but the timing is accidental.

The Statute for Industrial Innovation should have been passed by the end of last year. But since its passage was held up until now, its timing happens to be dragged out to May or June (when ECFA is expected to be signed).

Both ECFA and the Statute are very important tools. As we've said, foreign investors attach importance to two things: the business environment and taxation. As for the environment, opening up the markets of the world is the most important thing. It will give Taiwanese companies better conditions for conducting trade and commerce around the world. Signing ECFA is a must. And it will be followed in short order by free trade agreements.

Second, in its early stage Taiwan focused on developing its high-tech industry. But today conventional industries and high-tech should both have their own stage to play on, where they can both compete and thrive. That's where our concept has changed. Our industry has already developed to the current stage. If we continue our past approach of using the high-tech sector to drive Taiwan's economic development, it would be like flying with a single engine aircraft. Now we're expanding to include conventional industries, and adding another engine. An airplane can only fly fast, high and far if it has two engines.

That's where the correlation is between the Statute for Industrial Innovation and ECFA. But at home in Taiwan we also need to quickly do our job on industrial upgrading and transformation. At this time the government must use the tool of taxation to tune the two engines so that they are able to engage in benign competition.

Translated from the Chinese by Susanne Ganz

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Keywords:

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