Ministry meets on tax waiver plan

During a finance committee meeting yesterday, the Ministry of Finance proposed to waive a 10-percent tax on the "undistributed surplus earnings" of companies in keeping with a tax-reform consensus reached at the National Economic Conference in January of 2001.

When the unified tax system was adopted in 1998, the government began to levy an additional income tax on profits derived from surplus earnings that are not distributed by a profit-seeking enterprise.

Tax collection authorities, however, argue that the removal of this tax from the books would lead to a significant budget shortfall.

"If [this measure is] passed [by the legislature], the government's coffers are expected to be short by NT$14 billion in tax revenues this year," said Lin Tseng-ji (林增吉), director-general of the ministry's taxation department after a ministry committee meeting yesterday afternoon.

In order to make up the deficits, Lin said the government has plans to narrow the gap between individual income tax and the business income tax by increasing the ceiling for the latter to 30 percent from 25 percent.

In addition, some preferential treatment shared by many corporations would be eliminated. No company would be allowed to pay less than 5 percent of their incomes of the year, Lin said.

The ceiling on individual income tax would remain at 40 percent under this proposal.

"Such supporting measures will help balance the deficit," Lin said.

Among several other proposals, Lin said that his department has opted for the above-mentioned tax-reform proposal, balancing tax justice with any possible negative impact on high-tech companies.

In response to the ministry's tax-cut proposal, both representatives from the Chinese National Federation of Industries (CNFI, 工總) and the General Chamber of Commerce (GCC, 商總) expressed guarded endorsement.

CNFI chairman Lin Kun-chung (林坤鐘) said that business groups have been anticipating the change, but he was quick to express that his federation would like to keep the income tax rate ceiling below 30 percent -- "between 20 to 30 percent," he said.

Without pinpointing an exact tax rate, Ron Fu-ten (戎輔天) said on behalf of the GCC Chairman Gary Wang (王令麟) that the GCC believes it has become a world trend to reduce business income taxes, which are known to "average between 20 to 30 percent in most Southeastern Asian countries," he said.

A professional accountant, Paul Chu (朱寶奎) questioned the precondition of the ministry's new proposal to levy a minimum 5 percent business income tax on high-tech firms, saying "such a clause may dampen high-tech firms' local investments since other countries offer zero-tax incentives."

Chu also said that the government's coffers wouldn't suffer from the new tax-cut policy if the business income tax's ceiling was increased to a more modest 28 percent.

But members of the committee disagreed, saying that given the government's current financial difficulties, such tax breaks should not be offered especially after the unified tax system has presented many tax-cut opportunities to the corporate world.

With the completion of yesterday's committee meeting, the ministry is now expected to submit its proposal to the Executive Yuan for further review before taking it to the Legislative Yuan for final approval.