I keep asking a bunch of people about this and no one seems to have a good answer why. This is what I can piece together.
Here I am specifically talking about two groups of people: PRC passport holders living in China and PRC passport holders living outside of China (of course, not in Taiwan either). HK and Macau have different rules and can pretty much enter freely (need to apply for a free permit online).

31 July 2019 (still current): China stopped issuing individual travel permits to Taiwan (from mainland cities). https://www.bbc.com/news/world-asia-49178314 and official source https://www.mct.gov.cn/whzx/ggtz/201...731_845439.htm. It is not very clear to me whether group tourism is allowed, but I would guess no.
27 January 2020 (still current): Taiwan stopped applications from overseas PRC passport holders because of COVID. https://www.roc-taiwan.org/ussfo/post/6416.html
旅居海外大陸人士申辦「觀光」赴臺，暫緩受理
為防止新冠肺炎疫情擴大，自臺北時間2020年1月27日零時起系統暫緩受理來臺申請案，目前尚未知悉開放 時間。
Applications for "sightseeing" trips to Taiwan by people living overseas in mainland China are postponed
In order to prevent the spread of the new crown pneumonia epidemic, the system will suspend the acceptance of applications to Taiwan from 00:00 on January 27, 2020, Taipei time. The opening time is not yet known.
24 May 2023: Taiwan residents can go to the mainland for group travel: https://zwgk.mct.gov.cn/zfxxgkml/zcf...24_943985.html

Current restrictions from the Taiwan side (the orange one): https://www.immigration.gov.tw/5385/...211422/216338/

Now who is to blame for this? It's not super clear. The 2019 ban of tourism is from the China side and mostly looks like a political move. (Taiwan made a lot of money from mainland tourism and then it got taken away.) The 2020 ban from the Taiwan side sort of made sense with COVID, but doesn't make sense any more. They also implemented additional testing for Mainland travellers but of course everything has been dropped now. My opinion is that Taiwan is sort of happy with the current status quo of no Mainland visitors so they don't really feel like dropping the 2020 ban. If China drops the 2019 ban, they would probably drop the 2020 ban, but if they don't it is kind of a stalemate.