The Legislative Yuan yesterday passed an amendment to the Income Tax Act (所得稅法), lowering the business income tax to 17 percent.
The Chinese Nationalist Party (KMT)-dominated legislature voted 42 to 32 in favor of the KMT’s proposal to lower the tax rate from 20 to 17 percent, while rejecting the Democratic Progressive Party’s (DPP) version to lower the rate to 17.5 percent.
The new regulation will apply to earnings starting this fiscal year.
The legislature approved the bill after legislators on April 16 passed the Industrial Innovation Act (產業創新條例), granting tax breaks to corporations for research and development and recruitment of additional employees and requiring that a NT$100 billion (US$3.1 billion) fund be established within three years to help vulnerable industries.
The Industrial Innovation Act, initiated by the Executive Yuan in April last year, had been stalled on the floor until President Ma Ying-jeou (馬英九) weighed in by supporting cutting the business income tax rate to 17 percent from the original 20 percent, which was proposed by the Cabinet.
Although lawmakers had reached a consensus on the need to cut the tax rate, the legislature did not vote until yesterday to officially lower the rate.
After the amendment cleared the floor, KMT Legislator Alex Fai (費鴻泰) of the Finance Committee said the cut could enhance Taiwan’s competitiveness and attract more foreign investors.
“We hope to encourage international corporations to establish headquarters in Taiwan. We expect to see this happen in the near future,” Fai told a press conference.
The KMT caucus said in its proposal that the cut could generate NT$69 billion in economic benefits because the nation’s business income tax rate is now lower than China’s 25 percent and South Korea’s 22 percent.
DPP caucus whip Lee Chun-yee (李俊毅) said his caucus regretted the passage of the amendment, adding that the KMT caucus disregarded the tax reduction’s potential impact on state coffers.
The legislature also passed an amendment to the Act Governing the Relations between Peoples of the Taiwan Area and the Mainland Area (兩岸人民關係條例) to allow local air carriers and shipping companies to wire earnings made in China back to Taiwan.
Although Taiwan and China have signed two transport agreements allowing cross-strait air and sea carriers to repatriate earnings tax-free, they could not be implemented without the act’s revision.
Prior to the act’s amendment, earnings in China by Taiwanese carriers were subject to a 3 percent business tax and 1.25 percent income tax.
The problem is especially serious for air carriers that have accumulated more than NT$6.5 billion (US$203.08 million) in earnings in China since direct flights were launched between the two sides in July 2008.
This has impeded the capital flow at home for these carriers, an executive of a leading local carrier said.
The change takes effect retroactively, so carriers can remit Chinese earnings made prior to the act’s revision.