Following heated exchanges in debates that lasted all day, the Ministry of Finance's draft of the alternative minimum tax (AMT) proposal passed its first reading in the legislature's Finance Committee yesterday, with most draft clauses kept unchanged.
If it passes the second and third readings in the legislative body, the new law will become the nation's first tax hike in nearly five decades.
The latest version of the proposal leaves the minimum level for business income taxes unchanged at NT$2 million (US$59,700) per year, with the tax rate set at between 10 and 12 percent. The Cabinet will be able to adjust the taxation rate depending on the economic environment, according to the revised draft.
Individuals are required to pay 20 percent tax on annual earnings surpassing the threshold of NT$6 million, which was lowered from the original version's NT$8 million threshold.
The AMT proposal is aimed at plugging loopholes in the nation's taxation system which allow individuals and enterprises with a high income to claim excessive tax breaks, eroding social justice and leading to unfair taxation, its proponents say.
If the new regulations take effect on Jan. 1, as is stipulated in the draft, taxpayers will have to take it into account when they file their taxes in 2007.
Minister of Finance Lin Chuan (
Rock Hsu (許勝雄), chairman of the Taiwan Electrical and Electronic Manufacturers Association (電電公會), said he was disappointed with the latest version.
Hsu has been campaigning to keep the taxation rate for businesses under 7.5 percent, which he says will help maintain the nation's competitive edge.
"We have made an all-out effort to inform the government about taxation that would be favorable to the business sector. I think the government should thoroughly think through its taxation principles in order to maintain a competitive environment," Hsu said.
As for the controversial issue of taxing overseas income, the ministry and the committee's lawmakers came to a compromise to include a "sunrise clause" in the draft, allowing the ministry three to four years for preparations.
Article 12 of the draft stipulates that individual earnings made outside Taiwan should be taxed if they exceed NT$1 million per year. This is aimed at preventing excessive capital outflows in view of the increasing number of nationals earning an income outside the country.
As the finance ministry has reiterated the importance of devising complementary measures before implementing the new regulation, the draft stipulates that the taxation of overseas income should commence on Jan. 1, 2009.
The implementation date can be postponed for one year to Jan. 1, 2010, if necessary.
The committee also passed additional resolutions demanding that the AMT scheme be reviewed every two years and that the Ministry of Economic Affairs should send its revisions to the Statute for Upgrading Industries (促進產業升級條例) to the committee within one year.
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