Premier Wu Den-yih (吳敦義) yesterday denied the government made a policy U-turn in its decision to lower the business income tax rate from 20 percent to 17 percent, saying that the revision was made after soliciting views from all sectors of society and was based on references from other countries.
After the Presidential Office issued a press release on Sunday saying the Chinese Nationalist Party (KMT) never ruled out lowering the tax rate, the KMT caucus on Monday decided to lower business income tax to 17 percent.
The caucus’ decision came as a slap in the face of Minister of Finance Lee Sush-der (李述德), who previously insisted on either keeping the business income tax rate at 20 percent or scrapping all four tax breaks targeted at innovation included in the Cabinet’s bill on the promotion of innovative industries (產業創新條例). Concerned about losses in tax revenue, Lee opposed the Democratic Progressive Party (DPP) caucus’ proposal to lower the tax rate to 17.5 percent.
Wu said yesterday that the revision was the result of opinion-gathering in different sectors and references taken from other countries.
“[Seventeen percent] is not just a random figure,” Wu told a press conference. “This tax rate can ensure the competitiveness of Taiwan in global markets and compares well with 17 percent in Singapore, 16.5 percent in Hong Kong and 22 percent in South Korea.”
Other incentives included in the government’s version were tax breaks for research and development expenses and employment subsidies to small and medium-sized enterprises.
The Ministry of Finance estimated that the revised draft would result in a loss of NT$34.3 billion (US$1.08 billion) in annual tax revenues.
The bill on the promotion of innovative industries is regarded as an extension of the Act for Industrial Upgrading (促進產業升級條例), which expired at the end of last year. However, the bill has been severely criticized by tax fairness advocates, who said it would only benefit large corporations.
The Legislative Yuan is set to act on the industrial innovation bill on Friday.
Wu yesterday said the revision, with the lower business income tax rate and simplified procedures for applying for tax breaks, would render benefits not only to big businesses, but also to small and medium-sized enterprises. Wu called on the DPP caucus to support the government’s revised version.
“[The difference between the KMT and the DPP caucuses’ versions] was just 0.5 percentage points,” Wu said. “Does the DPP caucus really want to let the legislature continue to remain idle because of differences over 0.5 percentage points and keep small and medium-sized enterprises waiting for the bill with longing eyes?”
In response, the DPP yesterday blasted the Cabinet’s revised bill as an ominous blueprint that would deepen the government’s financial black hole and unfairly benefit the interests of large corporations.
The DPP said that the nation could ill afford a new bill that would cost the national coffers up to NT$75.8 billion in lost tax revenue.
“The KMT’s political tactics mean that not only are they subsidizing a few large corporations, they are also disregarding the government’s own financial problems,” DPP spokesperson Lin Yu-chang (林右昌) said.
Lin said that according to the party’s calculations using the tax revenue figures from 2008, an estimated NT$20.8 billion (US$659 million) of the deficit was to have come from a clause in the revised draft providing tax breaks for R&D expenses.
An original version of the draft proposed by the KMT caucus also suggested giving tax breaks to three other categories including multinational corporations, distribution centers and staff training.
On the other hand, the alternative version proposed by the DPP caucus called for the elimination of direct subsidies and instead proposed a uniform business income tax rate of 17.5 percent. The DPP’s version also suggested eliminating a government subsidy for the hiring of previously unemployed workers and placed stricter criteria on the development of industrial parks.
The loss of tax revenue stemming from the DPP caucus’ proposal would have only impacted tax revenues by NT$40.3 billion (US$1.28 billion), according to figures provided by the DPP , far less than the amount impacted by the finalized KMT proposal.
“This isn’t a contest of which party can cut taxes the most,” a statement released by the DPP said. “Our figure of 17.5 percent was designed to minimize the impact on our national coffers and was the result of intricate planning. We want the government to show their analysis of tax losses and not just throw out a figure.”
DPP lawmakers have said they plan to oppose the draft on Friday.
In a show of opposition against the Cabinet’s version, some DPP lawmakers also called on the resignation of the main proponent of the draft, Lee, saying that Lee was more concerned with politics than economics.
DPP Legislator Yeh Yi-jin (葉宜津) called Lee “unprofessional,” while DPP Legislator Wong Chin-chu (翁金珠) said: “We want Lee to resign immediately.”
KMT caucus whip Lin Yi-shih (林益世) yesterday described the DPP’s objection to the revised draft as “unreasonable.”
“When the DPP caucus proposed to lower the rate to 17.5 percent, it said the cut was reasonable, but when it was the KMT caucus that proposed to lower the rate to 17 percent, the DPP accused the KMT caucus of being a spendthrift,” Lin told a press conference.
Legislative Speaker Wang Jin-pyng (王金平) urged the DPP caucus to respect the KMT caucus’ plan to lower the tax rate because the KMT had shown its respect to the DPP during prior cross-party negotiation sessions.
“Since [the DPP] believes the rate could be lowered to 17.5 percent, there will not be too many differences if the rate were lowered to 17 percent,” Wang said.
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