New taxes hardly noticeable: minister

Faced with strong discontent in business circles about the Cabinet's Alternative Minimum Tax proposal, Minister of Finance Lin Chuan (林全) yesterday said that the minimum corporate tax rate would not have a big impact on companies' revenues.

The proposal is based on a 10 percent tax rate to be levied on companies with annual revenues of NT$2 million (US$61,000) or more, and a 20 percent tax rate for those individuals with an annual income of more than NT$8 million.

Lin said that if a business earns NT$10 million a year without enjoying any tax breaks or incentives, it will have to pay NT$2.5 million in business income tax, which levies a 25 percent rate on corporate earnings.

As the new taxation policy will affect businesses earning over NT$2 million, Lin said the hypothetical company would only be eligible to pay tax on the remaining NT$8 million, which would result in a minimum tax of NT$800,000. Since this value is smaller than its business income tax of NT$2.5 million, the minimum tax scheme would not apply to this company.

Lin added that if the prospective business enjoys a five-year tax-exempt incentive in accordance with the Statute for Upgrading Industries (促進產業升級條例), which, for example, could give it a tax break of NT$7 million, then only NT$3 million per year will be eligible for taxation.

In terms of the business income tax, it will have to pay NT$750,000. If calculated according to the minimum tax rate, it will have to pay NT$100,000 after subtracting the NT$2 million tax deduction. In this case, the minimum taxation scheme would also not apply.

Moreover, companies which start their planned construction within one year and finish their investment projects in three years can continue to enjoy the five-year tax breaks as promised by the government, Lin said.

"About 2,000 companies will be affected by the minimum corporate taxation scheme. I don't think corporate willingness to invest will be affected, as these companies already have to pay the business income tax anyway," Lin said.

As for inheritance and gift taxes, the minister said the government plans to trim down the tax rate from the current 50 percent to 40 percent, considering the highest individual income tax rate is set at 40 percent.

President Chen Shui-bian (陳水扁) on Tuesday instructed government agencies to study the possibility of canceling the inheritance tax to encourage the inflow of overseas capital and to promote investment.

Lin said yesterday that since the government currently earns NT$30 billion per year from inheritance and gift taxes, it will have to carefully consider whether the revocation of these taxes can really help stimulate domestic economic development.

"The tax reform is not perfect, but we'll have to pursue social justice and fair taxation before further making progress," Lin said, adding that tax proposal marks a historical step in the pursuit of fair taxation.

Under the new taxation scheme, the government can secure an extra tax income of NT$10 billion in the first year, which accounts for only 1 percent of the nation's overall tax revenue, but marks the first step on the long road to tax reform, Lin said.

The benefit of the minimum taxation system will become evident after five years, when around NT$20 billion to NT$30 billion is expected to be injected into the state coffers every year, the minister said.