The Cabinet yesterday approved a tax reduction proposal that would benefit companies and 73 percent of middle and low-income households when they file tax returns for 2010 in May 2011 if the amendment succeeds in gaining legislative approval.
Yesterday was the second time the government has pushed through a tax-reduction plan to boost the economy since it took office last May, following a plan that would grant higher tax exemptions in four categories to individual taxpayers in May when they file tax returns for last year.
The proposed amendment to the Income Tax Act (所得稅法) would reduce three main brackets for individual income tax rates by 1 percentage point to 5 percent, 12 percent and 20 percent, while the enterprises income tax would be cut from 25 percent to 20 percent.
The individual income tax rate cut is expected to result in an annual loss in tax revenue of as much as NT$17 billion (US$486.7 million), while the reduction in enterprise income tax could result in an annual tax loss estimated at NT$80.8 billion, the Ministry of Finance said.
Ministry of Finance Deputy Minister Chang Sheng-ford (張盛和) told a press conference held after the weekly Cabinet meeting yesterday that the imminent expiration of tax privileges granted to certain industries to encourage them to upgrade their capabilities would offset revenue losses stemming from the tax reduction proposal.
After the sunset clause stipulated in the Act for Industry Upgrading (促進產業升級條例) expires at the end of this year, there will be an increase of NT$148.3 billion in tax revenue every year, Chang said.
Despite the expiration of the sunset clause, the government had decided that firms would still receive tax incentives for investments in research and development projects, cultivating expertise or setting up operational headquarters or logistics centers in the country.
“In total, the whole proposal would result in a tax loss of NT$1.1 billion per year, which is roughly in line with the principle of neutral taxation,” Chang said.
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