Wed, Jul 12, 2006 - Page 12 News List

Longer grace period for extra tax urged

TEN PERCENT MORE Wang Ying-chieh from the General Chamber of Commerce suggested extending the grace period on imposing the tax from one to five years

By Jackie Lin  /  STAFF REPORTER

Businesses might be given a grace period of up to five years before a 10 percent business income tax is levied on their undistributed surplus earnings, according to a consensus reached yesterday by a panel that is preparing for the Conference on Sustaining Taiwan's Economic Development.

The conference is scheduled for July 27 and 28.

Since the unified tax system was adopted in 1998, an additional income tax has been imposed on corporate profits derived from surplus earnings that are not distributed to employees.

However, businesses have been urging the Ministry of Finance to waive the 10-percent tax, saying the regulations were poorly drafted and companies have been unfairly taxed.

According to the ministry, the 10 percent tax scheme is applicable to around 300,000 companies a year and brings in more than NT$20 billion (US$616 million).

The additional income tax has stopped enterprises from helping their well-paid individual shareholders evade taxes and has narrowed the losses under the unified tax system, Minister of Finance Ho Chih-chin (何志欽) said.

When the issue was brought up at the panel meeting yesterday, Minister without Portfolio Ho Mei-yueh's (何美玥) request for a discussion drew a lukewarm response.

Ho Mei-yueh, a former minister of economic affairs, chaired the meeting, which was attended by lawmakers, academics, government officials and business representatives.

The only suggestion came from Wang Ying-chieh (王應傑), representing the General Chamber of Commerce (商業總會), who suggested that the grace period for the additional tax be increased from the current one year to five years.

Chairman Ho's suggestion that his idea be made the preliminary conclusion, subject to discussion at the formal conference, drew no objections from the other attendees.

Ho Chih-chin, who took up the economics portfolio last week, said yesterday was the first time that he had heard of a five-year grace period, but the ministry would carefully evaluate how it would impact the treasury and the nation's overall tax system.

"If the proposal is passed [at the conference], the main problem is that tax revenues of at least NT$100 billion will be deferred for five years," the minister said later.

The government would have to find ways to make up for the budget shortfall, with complementary measures mapped out for taxation officials, Deputy Minister of Finance Lin Tseng-chi (林增吉) said.

Participants at yesterday's meeting also agreed that the system of taxing employee bonus shares based on par value should be scrapped when the Statute for Upgrading Industries (促進產業升級條例) expires in 2009.

In a seperate meeting at the ministry, participants concluded that restrictions on auctioning off large parcels of state-owned land should be lifted to boost urban development. The government could also design build-operate-transfer programs to make the best use of state land and boost the state coffers, as was done with the Miramar Garden Taipei hotel, they said.

The restrictions against selling state land were put in place after a bidding scandal erupted in January. When the auction mechanism will be used again depends on the outcome of the economic conference.

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