Technology firms said yesterday that the Ministry of Finance's proposed alternative minimum tax (AMT) could create chaos on the stock market and prompt companies to change the way they reward employees if it becomes law.
The first reading of the ministry's draft proposal was passed by the legislature's Finance Committee on Wednesday.
One clause in the draft would require individuals whose annual earnings are more than NT$6 million (US$178,428) to pay taxes on shares they receive as part of their bonuses. The tax would be based on the stock market value of a stock on the second day of issuance instead of its average value.
"We hope that the taxation will be based on rationality and will not affect the development of local technology companies in any way," said David Chen (
He said the association is still waiting to hear from its members on the issue, and more evaluation would be needed if the proposal becomes law.
The measure is expected to affect high-income executives in the technology sector as these companies tend to award employees share bonuses as a way to retain personnel.
Among the hardest hit will be publicly listed firms with high share prices, including Largan Precision Co (
"If it [the bill] passes the third reading, it might affect the way companies reward their staff in the future, as they will think twice about giving share bonuses," said Charles Chiu (邱東泉), Largan's chief financial officer and spokesman.
According to Chiu, the new scheme might prompt some employees to sell their shares as soon as they get them, in a bid to avoid losing money if share prices drop in the future.
"There is a possibility that it [the AMT] could cause a mess in the stock market as employees might rush to sell their shares," he said.
Chiu said the measure would be a burden to both companies and their employees if it becomes law.
The effect on Largan might be comparatively smaller, however, as its bonuses are traditionally divided into 30 percent shares and the remainder in cash.
Largan expects to maintain this ratio in the near term and will consider other options only if the proposal passes its third reading, Chiu said.
Meanwhile, the nation's biggest flat-panel maker, AU Optronics Corp (
If the proposal passes its second and third readings in the legislature and becomes law, it would be the first tax hike in nearly five decades.
If it is passed, the measure would take effect on Jan. 1, so taxpayers would have to take it into account when filing next year's taxes in 2007.
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