Consistent Policy Directions: The key to making people and businesses think bold, dream big, and believe in Taiwan.
“At a time when we have restored economic momentum, I invite all of you to think bold, dream big, and believe in Taiwan,” said President Tsai Ing-wen when addressing the international business community at AmCham Taipei’s Hsieh Nien Fan banquet earlier this year.
Indeed, we’ve come a long way. It is very encouraging that recently various economic indicators point to a solid and continuing economic recovery for Taiwan, with both GDP growth and foreign investment on the rise.
But it’s no time for complacency. According to the 2017 World Competitiveness Yearbook published by IMD (the International Institute for Management Development), Taiwan’s world competitiveness stood in 14th place in 2017, which remains the lowest ranking in the past seven years. In particular, Taiwan still lags far behind Hong Kong and Singapore, which ranked No. 1 and No. 3 respectively.
Commenting on Taiwan’s competitiveness in an interview with the Taipei Times in late 2017, Professor Arturo Bris, Director of IMD’s World Competitiveness Center, indicated that Taiwan needs to enhance its policy stability, consistency, and predictability.
This observation is quite accurate. To make Taiwan more competitive and attractive as a destination for foreign investment, it is imperative that the Taiwan government maintain a stable and predictable regulatory environment with clear, consistent overall government policy directions.
While we’re encouraged by certain recent positive developments, much remains to be done, and the international business community stands ready to engage with the Taiwan government towards achieving this vision. We do, however, wish to highlight a case that epitomizes instability, inconsistency, and unpredictability of policy directions – the regulation of the tobacco industry.
On June 12, 2017, the Taiwan government implemented a NT$20/pack increase in the tobacco excise tax as a key funding source for its long-term care plan. The increase was the largest in Taiwan’s history – an increase of 170% from the previous level.
This radical tax hike exacerbated illegal trade. According to data released by the National Treasury Administration, 20.86 million packs of illegal cigarettes were confiscated in 2017, a staggering 111% increase compared to 9.9 million packs seized in 2016.
While the market remained highly unstable due to the surge in illegal trade, and with the resulting loss in excise revenue already having a significant impact on the funding of the long-term care plan, the Executive Yuan sent its proposed amendments to the Tobacco Hazard Prevention and Control Act (THPCA) to the Legislative Yuan, which held its first reading on December 29, 2017. The bill contains various extreme regulatory measures which, if adopted, would further contribute to the growth of illegal trade and to the further erosion of revenue derived from the tobacco excise tax – a move in sharp contradiction to the Government’s objective to fund the long-term care program by increasing taxes on tobacco.
The most extreme of the proposals contained in the government’s THPCA amendment proposal is the so-called “3-Strike Rule,” which would terminate a tobacco company’s import/manufacture license after three definitive violations over a five-year period under the existing ban on the promotion or advertisement of tobacco products. Revoking the license would be in addition to already hefty fines ranging from NT$5 million to NT$25 million per violation.
This extreme measure, if adopted, would exacerbate the existing problem of biased and selective enforcement and could very likely lead to the termination of all legitimate business in the tobacco sector. Consumer demand for tobacco products would then be met by criminal elements, much like the situation in Brunei where illegal trade accounts for almost 100% of the market after legitimate businesses were forced out of the market by extreme regulations.
Other government proposals to amend the THPCA include a total ban on the use of flavors in cigarettes, which would drive consumer demand towards smuggled, illegal products, as well as enlargement of the size of on-pack pictorial health warnings from the current 35% to 85% of the space, which would make counterfeit and contraband products easier to make, distribute, and sell.
If enacted, the extreme proposals indicated above would deal a major blow to Taiwan’s important and sustained efforts over the past years dedicated to the fight against illegal tobacco products, and undermine law enforcement agencies’ significant achievements to date on this front. To the detriment of Taiwan’s global competitiveness, the potential adoption of these extreme measures would also send a wrong message to the international business community about Taiwan’s commitment to maintaining a stable, consistent, and predictable regulatory environment.
In her Hsieh Nien Fan address, President Tsai reassured the international business community that the Administration will continue to put the economy first. Indeed, now is the time to build upon recent positive developments and shape a competitive regulatory environment based on sound evidence, as well as maintain a stable and predictable regulatory environment with clear and consistent government policy directions.
For this will be good news for Taiwan’s economy, for trade and investment, and for the business community, which will indeed be able to “think bold, dream big, and believe in Taiwan.”