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New system will choke investment, business groups say

Business groups yesterday expressed resentment at the Cabinet's passage of a 10 percent minimum tax on companies, saying that if the legislature were to pass the bill, it would severely dampen investors' interest in Taiwan.

"This is just like killing a chicken to get the eggs," said Tsai Horng-ming (蔡宏明), deputy general secretary of the Chinese National Federation of Industries (全國工業總會).

"The government will see its tax revenue diminish over time as companies gradually move their investments overseas," he said.

In the days before the bill's passage by the Cabinet, local business groups met government officials several times to discuss the tax issue.

While agreeing in principle with the government's plan of levying a minimum tax on corporations, the business groups said they hoped the government could introduce the tax at 7.5 percent and gradually raise it to 10 percent by the third year, which they said was a range businesses would be able to afford.

Tsai said that the general business environment is worsening, with local manufacturers reporting dwindling revenues this year as soaring oil prices curtailed exports.

Local companies, especially those in the high-tech sector, are struggling with narrowing margins as a result of stiff competition, so adding to their tax burden would eventually force them to look for overseas markets which offer a more favorable investment environment, he said.

A recent survey commissioned by the Ministry of Economic Affairs and conducted by the Chung-Hua Institute of Economic Research (CIER, 中經院) showed that the implementation of the tax policy would have a significant impact on local manufacturers' business operations and investment decisions.

According to the survey, which was released on Monday, 39 percent of the respondents said they would move part of their production offshore if the government levies a minimum tax of 10 percent on enterprises, while 33.3 percent said they would outsource part of their operations and 29 percent said they would lay off workers or cut salaries.

The minimum tax policy will also scare some foreign investors away, Guy Wittich, chief executive officer of the European Chamber of Commerce Taipei (ECCT), told the Taipei Times yesterday.

"We are very much concerned about this worrisome issue ... many foreign investors decided to invest in Taiwan because of the tax incentives, and if the new rules are not attractive, they may consider whether or not to continue investing in Taiwan," Wittich said.

"Taiwan should stay competitive by capitalizing on the high-tech industry in which it has the advantage, but the [new] rule will scare foreign investors away," he said.

After their suggestions about the minimum tax law went unheeded, business groups are now turning their focus to the Legislative Yuan, hoping lawmakers will revise the tax policy to affordable rates, said Luo Huai-jia (羅懷家), an executive director of the Electrical and Electronic Manufacturers' Association (電電公會).

Local chipmakers are already being threatened by emerging competitors in China because of the government's investment ban, and the new tax measure could result in a further decline in the flat-panel industry as domestic manufacturers move out, Luo said.

Luo referred to a report in the Chinese-language media that said Corning Inc, the world's largest maker of glass substrates used in liquid-crystal displays (LCDs), may build its third plant in South Korea instead of Taiwan if the tax incentives to foreign investors are cancelled.
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