Mon, Feb 28, 2005 - Page 10 News List

Government's tax plans worry pundits

MAJOR CONCERN Industry insiders warned yesterday that proposed plans to put a minimum tax on high-tech companies could divert big investments to other countries


The government's recently announced plans to levy a minimum tax on high-tech industry companies could divert electronics firms' future investments to other countries offering them preferential treatment, industry insiders warned yesterday.

To solve the mounting pressure of a budget deficit, the Ministry of Finance is contemplating imposing a minimum tax of up to 10 percent, or 12 percent on industries, especially the high-tech industry, which has been enjoying tax breaks for a long time.

The government is offering different preferential taxes to boost investment in emerging industries, but Finance Minister Lin Chuan (林全) said these "runaway" tax schemes have caused a reduction in tax income of around NT$50 billion a year.

In response, Tsao Tian-chang (曹典章), secretary general of the Association of Allied Industries in Science-based Industrial Parks (台灣科學工業園區同業公會), said "it's unreasonable to calculate the contributions of industries merely by how much tax they paid."

Seen from a wider angle, high-tech firms have created job opportunities and stimulated the nation's economy with massive investments, Tsao said.

"To spur private investments at home and to attract investment from abroad, many countries around the globe, including China, are offering all kinds of tax incentives," Tsao said.

The government's push for a minimum income-tax rate and the removal of five-year tax breaks for emerging industries has already caused growing concern in business circles over the deterioration of Taiwan's investment environment, Tsai said.

"Going against the grain, Taiwan could risk lowering its competitiveness," he said.

Debates over the planned taxation flared up after allegations were levelled against the nation's No. 2 contract chipmaker, United Microelectronics Corp (UMC, 聯電), of illegally investing in Chinese chipmaker He Jian Technology (Suzhou) Co (和艦).

The UMC case caused harsh criticism of Taiwan's semiconductor industry, as semiconductor companies were seen as the biggest beneficiaries of tax breaks -- reaping the biggest profits, while being taxed at the lowest rates.

"We paid a lot of income tax just last quarter," said Albert Lin (林育中), a spokesman for ProMOS Technologies Inc (茂德科技), a leading memory chipmaker based in Hsinchu in northern Taiwan.

The semiconductor industry was not the only sector covered by preferential tax schemes, but also traditional industries, he said.

Compared to Taiwan, Beijing offered far more discounts on income tax, property rental and power and water rates for overseas chipmakers building factories there, Lin said.

Some of the local governments provide a 10-year income-tax exemption period and another 10-year period with a 50 percent reduction in taxes, he said.

Last year, ProMOS filed an application to the government to invest US$1 billion in building a less advanced 8-inch factory in China, after Taiwan Semiconductor Manufacturing Co (台積電) got the green light in late 2003 to manufacture chips in Shanghai.

Locally, ProMOS plans to invest US$4.6 billion in setting up two advanced 12-inch plants in Taichung in central Taiwan.

The first plant is slated to start mass production some time next year with a monthly output of 35,000 units.

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