Local governments had, therefore, to rely on handouts from the central government. In the past, the central and local governments fought over subsidies every year. The central government has trouble trying to fairly distribute the subsidies among the local governments as well. Once the local governments enjoy more financial autonomy, they will have more opportunities to find sources of income at the local level and levy taxes based on the unique circumstances of each city or county. For example, a local government may levy new taxes for special development projects or products, and use the funds for the promotion of environmental protection or other important local affairs.
Local taxation is an important part of local autonomy under the Constitution.
However, the central government passively put it on the back burner by failing to enact the needed laws. Once complete local autonomy is restored, a legal basis will exist to deal with, for example, the complaints against the Hsinchu City Government's levying of special taxes on firms in the Hsinchu Science-based Industrial Park. In view of the fact that counties are the smallest autonomous units provided by the Constitution, to avoid the confusion caused by different taxes being levied by different local governments, and to set the stage for future appointment of rural and urban township commissioners, the new law does not authorize taxation by rural and urban townships. By allowing local financial autonomy, however, a local government head's performance will be rated instead by how he or she finds new sources of income, plans and implements development projects, as well as their ability to invite local investment. This is a more fair and reliable way for rating performance.