Firms in China face rising taxes

Taiwanese companies moving production to China are slowly losing government tax holidays on factories still in Taiwan since they are not upgrading plants here and instead building in China where they do not enjoy such tax advantages, officials said yesterday.

The Directorate General of Budget Accounting and Statistics (DGBAS) said on Friday that investment in Taiwan dropped by 11.5 percent in the first half of this year compared to last year, as companies invest elsewhere. Growth for the remainder of the year is expected to increase year-on-year by 14.7 percent, but overall reach only a 0.7 percent growth rate for all of this year.

The anemic growth rate shows companies in Taiwan remain focused on investing abroad despite recent calls by the government to reinvest in higher value-added R&D centers in Taiwan. Many companies will now fail to qualify for tax holidays in Taiwan because of their lack of reinvestment here.

According to officials at the Industrial Development Bureau, under the Ministry of Economic Affairs, companies receive a five-year tax holiday rate of 7 percent when investing in a new facility here. Plant upgrades, re-tooling and other factory improvements can extend the tax breaks.

expiration dates

Motherboard makers in Taiwan, such as Asustek Computer Inc (華碩電腦) and Elitegroup Computer Systems Co (精英電腦), have spent the past few years shifting production to China. Analysts said that tax holidays on their Taiwan-based plants are about to expire and will probably not be renewed because of a lack of re-investment.

The reports sent shares of motherboard makers on the TAIEX sharply lower yesterday. Asustek led the way, plummeting NT$4 to end the day at NT$85.5 per share, while Elitegroup Computer System Corp (精英電腦) dropped by 3.91 percent to NT$86.

Micro-Star International Co (微星) fell 2.91 percent to NT$100 and Gigabyte Technology Co (技嘉科技) fell 0.65 percent down to NT$76.5 per share.

"We are not in danger of losing our tax breaks because we still buy new equipment for our facilities in Taiwan," Asustek spokesman Joe Hsieh said.

The company has only shifted labor intensive work to China, while concentrating on higher value-added products and R&D in Taiwan, he said.

Asustek has developed game-console manufacturing and personal-digital-assistant production in Taiwan, Hsieh said.

But R&D on new products does not always guarantee lower taxes.

"Mainboard makers have had to pay higher taxes as a result of a new government policy which began last year," said one analyst on condition of anonymity. The increases will occur gradually, he said.