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TAIWAN
Taiwan's
economy is 71.1 per cent free, according to our 2007 assessment, which
makes it the world's 26th freest economy. Its overall score is 0.5
percentage point higher than last year, partially reflecting new
methodological detail. Taiwan is ranked 6th out of 30 countries in the
AsiañPacific region, and its overall score is much higher than the
regional average.
Taiwan has high levels
of investment freedom, trade freedom, property rights, fiscal freedom,
freedom from corruption, and freedom from government. The average tariff
rate, inflation rate, and level of corruption are all low. Although
Taiwan's personal income tax is high, the corporate tax rate is moderate,
and overall tax revenue is low as a percentage of GDP. Government spending
is similarly low.
Taiwan's investment
climate is healthy, and 100 per cent foreign ownership is permitted in
most sectors. Property rights are protected by the judiciary, although
there are minor problems with case delays and corruption associated with
organised crime.
Taiwan is relatively
weak in labour freedom and business freedom. The country's labour market
is not as flexible as it could be, and dismissing a redundant worker is
costly. Starting a business takes as long as the global average, but
commercial licensing can be difficult.
Background
Taiwan is Asia's fifth
largest economy and one of its most dynamic democracies. Despite Taiwan's
long-standing autonomy from the People's Republic of China, Beijing's
"One China" policy has isolated Taipei from the international
community and pressured it to accept PRC suzerainty. Taiwan seeks to
participate in the World Health Organisation and to maintain a presence in
international trade and financial organisations with the help of such
democratic partners as the United States and Japan. The service industry
leads the Taiwanese economy, and both the agricultural and manufacturing
sectors are gradually declining.
Business freedom - 73.0
per cent
Starting a business
takes an average of 48 days, which is about the world average. To maximise
entrepreneurship and job creation, it should be easier to start a company.
Obtaining a business
license can be difficult, but closing a business is easy. The overall
freedom to start, operate, and close a business is relatively well
protected by the national regulatory environment.
Trade freedom - 76.7 per
cent
Taiwan's weighted
average tariff rate was 1.67 per cent in 2005. Prohibitive agriculture
tariffs, import bans and restrictions, import taxes, export subsidies,
burdensome standards and certification requirements, complex regulations,
restrictive sanitary and phytosanitary rules, service market access
barriers, and weak enforcement of intellectual property rights all add to
the cost of trade. Consequently, an additional 20 per cent is deducted
from Taiwan's trade freedom score to account for these non-tariff
barriers.
Fiscal freedom - 84.7
per cent
Taiwan has a high income
tax rate and a moderate corporate tax rate. The top income tax rate is 40
per cent, and the top corporate tax rate is 25 per cent. Other taxes
include a value-added tax (VAT) and a capital gains tax. In the most
recent year, overall tax revenue as a percentage of GDP was 8.5 per cent.
Freedom from Government
- 89.8 per cent
Total government
expenditures in Taiwan, including consumption and transfer payments, are
moderate. In the most recent year, government spending equaled 15.3 per
cent of GDP, and the government received 14.4 per cent of its revenues
from state-owned enterprises and government ownership of property.
Monetary freedom - 81.3
per cent
Inflation in Taiwan is
low, averaging 1.9 per cent between 2003 and 2005. Relatively stable
prices explain most of the monetary freedom score. The government
regulates the prices of pharmaceutical and medical products and is also
able to influence prices through regulation, subsidies, and state-owned
utilities. Consequently, an additional 10 per cent is deducted from
Taiwan's monetary freedom score to account for these policies.
Investment freedom -
70.0 per cent
Repatriation of profits
is not restricted, and 100 per cent ownership is permitted in most
sectors. However, foreign investment is prohibited in a handful of
industries such as agriculture, wireless broadcasting, oil exploration of
Taiwan's coastal area, public utilities, and postal services. Foreign
investment is limited in the telecommunications sector, electricity
transmission and distribution, and high-speed railway transportation.
Restrictions on capital flows relating to portfolio investment have been
removed. The insurance and securities industries have been liberalised and
opened to foreign investment. Access to Taiwan's securities markets by
foreign institutional investors has also been broadened.
Financial freedom - 50.0
per cent
Taiwan has liberalised
the traditionally over-regulated financial sector. Among other things, the
government has reduced many restrictions on financial activities,
particularly the activities of foreign financial institutions. A wide
variety of financial instruments are available to foreign and domestic
investors on market terms. Four state-owned banks were privatised in 1998,
four more in 1999, and one more in 2005. Four state-controlled banks
remain, including two of the three largest domestic banks, which together
account for 16 per cent of bank assets. Banks offer a wide range of
services, and foreign banks are treated essentially the same as domestic
banks.
The insurance and
securities industries have been opened to foreign participation and
ownership, although foreign participation remains relatively low. The only
reinsurance company was privatised in 2002. Capital markets are
sophisticated, and the stock market is open to foreign participation,
except for select industries.
Property rights - 70.0
per cent
Property rights are
generally protected, and the judiciary enforces contracts, although the
court system is very slow. One of the judiciary's biggest problems is
corruption associated with organised crime.
Freedom from corruption
- 59.0 per cent
Corruption is perceived
as present. Taiwan ranks 32nd out of 158 countries in Transparency
International's Corruption Perceptions Index for 2005.
Labour freedom - 56.7
per cent
The labour market
operates under inflexible employment regulations that hinder overall
productivity growth. The non-salary cost of employing a worker is
moderate, but dismissing a redundant employee is relatively costly.
— Courtesy: The
Heritage Foundation
Quick Facts
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Population: 23 million (2006 estimate)
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GDP (PPP): $631.2 billion (2005 estimate)
6.1% growth in 2004
3.4% 5-yr. comp. ann. growth
$27,600 per capita (2005
estimate)
*
Unemployment: 4.4%
*
Inflation (CPI): 1.6%
*
FDI (net inflow): ñ$5.2 billion
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Official Development Assistance: $15 million (4% from the U.S.)
*
External Debt: $87.5 billion (2005 estimate)
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Exports: $199.6 billion
Primarily computer products,
electrical equipment, metals, textiles, plastics, rubber products,
chemicals
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Imports: $188.3 billion
Primarily machinery,
electrical equipment, minerals, precision instruments
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