The Legislative Yuan yesterday passed an amendment to the Act for Industrial Innovation (產業創新條例) offering companies tax breaks for investing in 5G technologies or smart machinery.
The amendment stipulates that businesses that invest at least NT$1 million (US$31,898) in smart machinery or 5G-related equipment, technology or services between Jan. 1 and Dec. 21, 2022, and meet relevant requirements can apply for investment tax credits.
To prevent companies from claiming excessive tax credits and to maintain tax equality, investments on which tax credits are earned cannot exceed NT$1 billion, the amendment says.
Businesses could choose between a one-time 5 percent reduction to their income tax that year, or a three-year 3 percent tax cut, but cannot change their decision, it says.
Tax credits cannot exceed 30 percent of a firm’s tax liability for the year, it adds.
In response to a global wave of Industry 4.0, the government should act within the next three years — a crucial period in the development of smart manufacturing — the Ministry of Economic Affairs said in its legislative advice.
The short-term tax incentive could encourage companies to introduce digitization to increase production capacity and drive the construction of a 5G environment to realize smart living, it said.
In cross-caucus negotiations yesterday, Chinese Nationalist Party (KMT) caucus whip William Tseng (曾銘宗) asked the ministry to explain how many companies would be eligible for tax credits, as well as the amount of investment and losses in tax income that could be expected.
The tax credits would encourage up to an estimated investment of NT$100 billion a year, Industrial Development Bureau Director-General Leu Jang-hwa (呂正華) said.
Although the government would intially lose tax revenue, employment taxes would increase due to “highly knowledge-intensive” workers, he said, adding that there would be an expected net benefit of NT$24.56 million.
Chinese equipment is relatively cheap and is a huge incentive for companies, Democratic Progressive Party Legislator Karen Yu (余宛如) said in the negotiations.
While Taiwan does not ban the purchase of Chinese equipment, the government should not be encouraging companies to procure it while pushing for industrial upgrades, as there could be national security issues, she added.
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