A tax reform bill yesterday failed to pass the legislature’s Finance Committee after lawmakers sought to introduce more than 50 deductions and the Ministry of Finance withheld support, saying it needed more time to assess potential tax losses.
The tax code changes aim to increase the business tax from 17 percent to 20 percent to cover a cut in the tax on firms’ retained earnings, and higher tax deductions for middle and low-income earners.
Chinese Nationalist Party (KMT) Legislator Alex Fai (費鴻泰), who presided over the meeting, ruled at noon that the committee would need to call another meeting to discuss the bill as lawmakers remain divided over its content.
It was unclear if the bill could clear committee this month and become law next year.
KMT lawmakers suggested sparing small and medium-sized enterprises (SMEs) from the business tax hike, which would add to the tax burden of 98 percent of firms.
“The tax hike is tantamount to punishing SMEs and disregarding their contribution to Taiwan’s economy,” KMT Legislator Lai Shyh-bao (賴士葆) said.
There are about 1.38 million SMEs in Taiwan, with 37 percent of them already being exempt from the business tax due to their modest scale, the ministry said.
The exemption would extend to another 270,000 firms that would only need to pay personal income taxes, it added.
The package would also cut taxes from 10 percent to 5 percent on companies’ retained earnings, giving them more financial flexibility to plan expansions and upgrades, Minister of Finance Sheu Yu-jer (許虞哲) said.
The measure would be more beneficial to SMEs because they tend to have greater difficulty raising funds compared with their large-cap peers, the minister said, adding that the total tax burden on SMEs would drop from 25.3 to 24 percent.
The sweeping tax code changes would help distribute the nation’s wealth more equitably and make tax evasion less desirable, as the dividend income tax would be raised from 20 to 21 percent for foreign investors.
The adjustment intends to narrow the gap between foreign and local investors, who are now subjected to personal income tax rates of up to 45 percent.
The gap has encouraged tax evasion and fund outflows through the creation of foreign dummy firms, accounting companies have said.
Other lawmakers recommended raising tax deductions for physical checkups, English study, long-term care, preschool education, visits to art performances, among other activities.
Democratic Progressive Party Legislator Julian Kuo (郭正亮) said the proposed attachments reflected a lack of funding for various government agencies that lawmakers have no choice but to remedy by adding to the tax reform bill.
Sheu said he welcomed all proposals, but could not make any promise because the ministry needs to evaluate potential tax losses.
The original bill would have cost the government between NT$5.9 billion and NT$6.9 billion (US$196.55 million and US$229.86 million) in tax revenue a year.
The figure could widen to NT$150 billion to accommodate the extra deductions, Sheu said.
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