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Talk of the Day -- Is government policy hurting competitiveness?

2012/07/15 21:05:15

During a seminar with business representatives at the Hsinchu Science Park Saturday, President Ma Ying-jeou got an earful of complaints from high-tech company executives, who said the government's industrial policy was "taking ammunition from our pockets."

The executives complained about issues ranging from the government's requirement that share bonuses be designated as an expense to a planned capital gains tax on stock transactions and said they were hurting their companies' competitiveness by dampening capital markets and driving talented people away from Taiwan.

Financial officials countered, however, that the tax burden faced by Taiwan's businesses is not as heavy as that faced by companies in neighboring countries.

Following are excerpts from media coverage of the issue:

The United Daily News:

Mirle Automation Corporation President Sun Hung said Taiwan's high-tech industry has been under increasing pressure from South Korea and China, but the relative lack of incentives is not as bad as the difficulty in retaining talent -- which he called "the greatest headache for Taiwan's high-tech industry."

Sun said recent government policies have been "taking ammunition from our pockets." The first example he gave was taxing employees based on the actual rather than par value of stock bonuses, which in the past were a key tool used by the industry to retain talent.

Stock bonuses are being taxed based on the stock's real value and employees may even soon also have to pay capital gains taxes on stock transactions, so "no one will want to accept stock even if you give it as a gift," Sun said.

At the same time that fewer incentive options are available to Taiwan's high-tech companies, the investment environment has deteriorated and capital is not being attracted, resulting in fewer innovations -- a vicious circle that is blunting Taiwan's overall competitiveness, Sun said.

Lora Ho, a senior vice president of Taiwan Semiconductor Manufacturing Company and spokesperson for the company, said a Ministry of Finance plan to increase the corporate minimum or alternative tax rate from 10 percent to 12 percent does not seem "appropriate."

TSMC would have to pay an additional NT$3 billion in taxes, and HTC, a smartphone vendor, will bear an additional tax burden of NT$2 billion because of the tax increase, she said, noting that such a policy would not be in the interest of investors, stock prices, or Taiwan's capital market.

In response, Ministry of Finance officials said that while they intended to raise the alternative tax rate to 12 percent, they have cut the corporate income tax rate from 25 percent to 17 percent -- about the same level as in Singapore and Hong Kong.

As to taxing stock bonuses based on the market value, officials said the policy "corrected" previous practices of overpaying workers at the expense of diluting company earnings and affecting the interests of other shareholders.

Most companies have been making up the shortfall in income caused by less attractive stock bonuses by raising salaries, according to the officials. (June 15, 2012)

The Economic Daily News:

Chairman Chi C. Hsieh of the Allied Association for Science Park Industries, citing the South Korean example, urged the government to link its exchange rate policy to its policy goal of boosting Taiwan's industrial competitive power.

The Korean won has depreciated 1.2 percent against the U.S. dollar recently, while the Taiwan dollar has depreciated a mere 0.07 percent -- a 16-fold difference, Hsieh said.

If big companies' profit margins have been cut by the relatively high value of the local currency, how can the smaller companies hang on since their profit margins are even slimmer? Hsieh said.

TSMC Chairman and CEO Morris Chang previously said that the Taiwan dollar exchange rate was one of his weekly frustrations when it comes to competing with Samsung of South Korea. (July 15, 2012)

(By S.C. Chang)