MOF plans further rationalization of taxes

With the milestone alternative minimum tax (AMT) legislation set to take effect next year, the Ministry of Finance (MOF) said there's room to lower the highest consolidated income tax rate, although it did not specify a timeframe.

The highest rate of consolidated income tax could be reduced in the near future," Minister of Finance Lin Chuan (林全) said.

"The passage of the AMT bill is a good starting point to rationalize the people's tax burden. The main purpose is not to increase tax revenues," he said during a press briefing.

The Basic Income Tax Code (基本所得稅法), which includes the AMT proposal, was passed by the legislature last Friday. It was the first tax-increase legislation in nearly two decades.

The government is hoping to use the increased tax revenues to plug its budget deficit, which hit NT$337.3 billion (US$10 billion) this year.

Considering the wide gap between the highest consolidated income tax rate at 40 percent and the business income tax ceiling of 25 percent, Lin vowed to gradually narrow the two.

This gradual reduction will eventually lead to the removal of the disputed 10-percent tax on the "undistributed surplus earnings" of companies.

When the unified tax system was adopted in 1998, the government began to levy an additional income tax on profits derived from surplus earnings that are not distributed by a for profit enterprise.

High-price stocks lost ground yesterday as investors worried that the earnings of such firms' would be affected by the new tax law, since their employee bonus shares will be priced at par value instead of market value.

Shares of Computer Corp (宏達電), the country's leading smartphone contract maker, dropped 4.8 percent to NT$496, while Largan Precision Co (大立光), the nation's leading maker of camera lenses, declined 3.5 percent to NT$490, and and Motech Industries Inc (茂迪), a maker of solar-power generating cells, lost 3.3 percent to finish the day at NT$449.

Analysts have said the implementation of the new law, commonly known as "the rich man's tax," will have short-term impact on technonolgy firms but will have a positive impact on the nation's taxation system.

They said it will also help rationalize the tech sector in the long run.

Lin said implementation of the AMT bill will push the high-income individuals and enterprises who have paid disproportionately low taxes or even none to pay a certain amount of basic taxes.

In the future, he said, the government can take steps to lower the consolidated income tax from 40 percent as a way of rewarding honest taxpayers and to stay up to date with international taxation practices.

But the ministry has not yet set a timetable for such changes.

"This will `rob the rich and help the rich,' which involves redistributing wealth among well-heeled people. It will draw less criticism," Lin said.