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Cabinet approves tax reduction plan

The Executive Yuan yesterday approved a tax reform package aimed at lowering business and income tax rates starting in January 2010.

If approved by the Legislative Yuan, the new tax plan would take effect beginning in the 2010 tax year and would cut the corporate income tax rate from 25 percent to 17.5 percent.

It would also eliminate the 10 percent surtax on undistributed surplus earnings and significantly reduce the income tax burden of waged and salaried workers as well as disadvantaged groups.

Premier Chang Chun-hsiung (張俊雄) said at yesterday's weekly Cabinet meeting that the Ministry of Finance submitted the tax reform plan to the Cabinet to prepare for the expiration of the Statute for Upgrading Industries (促進產業升級條例) at the end of next year.

Chang said the new tax plan would utilize NT$150 billion (US$4.7 billion) in taxes that are payable by the high-tech sector until the Statute for Upgrading Industries expires.

The reform package is targeted at reducing tax rates, expanding the tax base and simplifying the taxation environment.

Minister of Finance Ho Chih-chin (何志欽) said at a media conference after the meeting that the new business tax rate would be internationally competitive and attract foreign companies.

While the nation's business tax rate would be reduced to 17.5 percent, the rates are 17.5 percent in Hong Kong and 18 percent in Singapore, and may be reduced to 20 percent in South Korea by the new government, Ho said.

The maximum tax rate on taxable income for individuals would be reduced from 40 percent to 37.5 percent, while the lowest tax bracket of 6 percent would be cut to 5.5 percent.

In addition, the standard deduction for single taxpayers would be increased from NT$46,000 to NT$60,000 and for couples from NT$92,000 to NT$120,000.

The deduction for salaried or wage-earning employees would be raised from the current NT$78,000 to NT$100,000, while the deduction for handicapped people would be boosted from NT$77,000 to NT$100,000.

The special deduction for tuition would be adjusted from NT$25,000 for each household to NT$25,000 per person.

Democratic Progressive Party (DPP) presidential candidate Frank Hsieh (謝長廷), who doubles as DPP chairman, told reporters after the party's weekly Central Standing Committee meeting yesterday afternoon that the draft plan was in accordance with his position.

"Tax reform must ease the burden on salaried and wage-earning people," Hsieh said.

"In addition, it must make the nation's corporate tax environment more competitive compared with that of regional rivals such as Hong Kong and Singapore," he said.

The Ministry of Finance said yesterday that lower tax rates for businesses and larger tax rebates for individuals are expected to give the economy a boost.

The ministry said the scheme is expected to increase nominal and real GDP by 1.63 percent and 0.35 percent, respectively.

"This is an important benchmark of the nation's progress in tax reform, and also a milestone in my life," Ho told a media briefing yesterday.

"Not only will the majority of the population benefit from the creation of a fairer taxation environment, but the new scheme also provides for efficient tax administration and competitive tax rates that are attractive to international investors," he said.

Meanwhile, real consumption in the private sector is expected to grow by 1.15 percent, while investments in fixed assets are likely to increase by 5.71 percent, the latest finance ministry estimates showed.

Ho said econometric models showed that the new scheme may also narrow the nation's GINI coefficient, which measures the gap between the richest and poorest people.

However, the new scheme could create a NT$2 billion deficit, despite the tax revenues expected to be generated after the abolishment of the statute, Ho said.
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