Tax relief for high-tech entrepreneurs criticized

Industry watchers yesterday criticized a plan that would exempt from tax for five years income in the form of shares paid to people providing technology to a start-up company.

"High-tech industries have long enjoyed far greater tax benefits than traditional industries, which is not only unfair, but also distorts the allocation of the nation's financial resources," said Yophy Huang (黃耀輝), a researcher at Chung-hua Institute for Economic Research.

Huang said that most high-tech shareholders were high-income earners and should contribute more to government coffers than middle-class wage-earners.

High-tech industry entrepreneurs are taxed on average as little as 3 percent, far less than the average 16 percent across all sectors, according to Huang.

He said the Ministry of Finance's decision to cave in to pressure and grant the tax break would worsen the government's financial difficulties.

On Thursday, the Cabinet-level Council of Economic Planning and Development agreed to allow shareholders who swap their intellectual property or technology for a minimum of 20 percent stake in companies in "newly emerging strategic industries" to pay no taxes for five years.

The council said the tax break aimed to encourage knowledge-based research and development (R&D) efforts while attracting foreign talent to help upgrade the nation's technological edge.

The Ministry for Economic Affairs will decide which new-technology start-ups are included in the "newly emerging strategic industries."

Joel Chen (陳文炯), an accountant at Deloitte Touche Tohmatsu (勤業眾信), said he could understand why the finance ministry sought a compromise with the private sector.

"In principle, all capital gains should be taxed, but granting a grace period seems appropriate at present," Chen said.

Chen said that the finance ministry would have trouble levying such a tax as it is difficult to evaluate the value of technology, and the country has inconsistent rules governing tax rates for foreign intellectual-property shareholders and local patent shareholders.

Chen said he hoped the ministry would iron out the problems before the five-year grace period ends.

However, high-tech entrepreneurs expect the government to further relax their tax burden.

Luo Huai-jia (羅懷家), an executive director of the Taiwan Electrical and Electronic Manufacturers' Association (TEEMA, 電電公會), yesterday said that his association welcomes the government's decision, which would provide incentives for high-tech start-ups -- such as integrated-circuit designers -- to invest more in risky and expensive R&D.

Jack Lu (盧文祥), deputy director-general of the Ministry of Economic Affairs' Intellectual Property Office, said that there should be more tax breaks for certain emerging sectors that focus on R&D.

Lu yesterday reiterated his long-held stance that inappropriately high taxation may hurt the nation's burgeoning technology market.