The legislature’s Finance Committee yesterday approved a bill to increase taxes on banks and insurance companies, but added a resolution asking the financial regulator to study the merit of a deadline for the extra burden.
The legislative headway came after a heated discussion on the need for a time limit, as banks challenge the fairness of the levy.
The proposed tax hike is more like “feedback,” or gratitude by the banking industry for government support in past financial storms and should cease to exist once the state coffers grow strong enough, Bankers’ Association of the Republic of China (銀行公會) Lee Jih-chu (李紀珠) has suggested.
No other countries in the world impose business taxes on banking institutions, since they cannot take costs from their tax base like other industries, lenders have said.
“I wonder whether we should add a sunset clause to the tax increase, since it is not applied to stock brokerages, fund houses and non-lending operations at banks,” Chinese Nationalist Party (KMT) Legislator and retired finance professor Tseng Chu-wei (曾巨威) said.
Minister of Finance Chang Sheng-ford (張盛和) dodged the issue, while Financial Supervisory Commission Chairman William Tseng (曾銘宗) endorsed it.
The hike would take effect a month after it passes final readings. Revenues would go to a special reserve for the next 10 years and be used to bail out troubled financial institutions.
The reserve is NT$5 billion (US$165.25 million) in debt, the commission chair said, adding that an ideal figure between NT$180 billion and NT$200 billion would prevent systemic failure.
The tax would trim bank profits by 7 to 11 percent, with lenders that rely on the local market hit the hardest, Moody’s Investors Service said.
State-owned Bank of Taiwan (臺灣銀行) and Land Bank of Taiwan (土地銀行) are expected to be most affected by the 3 percentage point increase in the tax rate, given that both lenders derive more than 90 percent of their gross interest and fee income from the domestic operations on which the tax is levied.
State-run Mega International Commercial Bank (兆豐銀行) would feel the least impact, since overseas and offshore banking operations provided 64.17 percent of its revenue last year, Moody’s said.
Additionally, the committee exempted re-insurance premiums and provisions from the tax increase for non-life insurance companies.
The tax hike would weaken the sector’s earnings by 20 percent otherwise, given its modest provision and income, William Tseng said.
The bill also raises the income tax cap on households with net income of NT$10 million or more a year to 45 percent from the present 40 percent, while easing burdens on individuals by raising deductions to NT$90,000.
The hike would affect 9,500 households and generate NT$9.9 billion per year, the finance minister said.
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