Taiwan has no luxury for luxury tax

Taiwan's coffers are dwindling as the government slashed the inheritance and gift tax from 50% to 10%, while increasing spending to cushion the blow of the global economic downturn as well as the devastating Typhoon Morakot.

By levying the luxury tax, the government hopes to brand itself as a prudent manager standing on the moral high ground by raising revenue through taxation on the rich.

The argument surrounding a luxury tax generally goes like this: for supporters, the luxury tax is a way for the more fortunate in society to contribute.

Also, while a wealthy buyer likely won't feel much pain over having to pay an extra NT$1,000 when purchasing a NT$1 million sports car or yacht, the same NT$1,000 will certainly leave a mark on someone with an annual income of NT$20,000.

For opponents, the luxury tax is a punishment for success. A luxury tax hampers the appetite for luxury goods and thereby harms the middle-class workers in the luxury market.

It also curbs entrepreneurship in the high-end market in Taiwan, putting it in a bad position at a time when first world countries are shifting their reliance on manufacturing to design, service, innovation and generally more luxurious markets.

While both sides of the argument have merits, to fully debate the pros and cons of a luxury tax in Taiwan, however, the discussion must go beyond general principles.

The luxury tax is sometimes used as an essential tax on nonessential goods during critical moments in a country's history. The luxury tax in the U.S. started as a way to pay the country's war bills in World War I.

The rationale is simple: since every possible source of revenue has to be squeezed to meet the huge budget hole created by war expenses, it makes sense to start with the affluent citizens.

“If [the luxury tax] is not carried in the [revenue] bill, it would mean simply that others, less able to pay taxes at all, would have their revenue taxes increased, for our war bill must be paid,” Congressman Julius Kahn of California said in 1918.

After the worst global recession in generations and one of the worst natural disasters in its history, Taiwan is perhaps truly in need of tapping every viable source of income.

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