The Taiwan government may grant tax deductions to local companies with operations in China to ease the burden of double taxation and encourage them to repatriate profits back to Taiwan.
Under the proposed reform, companies would be allowed to claim taxes paid in China as deductions for local tax purposes, Finance Minister Yen Ching-changu (
Taiwan considers the effort to "eliminate double taxation in cross-strait investments as a goodwill gesture toward the Chinese government, but we are now waiting to see positive responses from China," Yen said.
By the end of last year, Taiwan publicly traded companies had invested US$4.4 billion in China, lured by its cheaper production costs. Profit from those operations is harder to gauge though, because companies have been reluctant to disclose earnings on which they may be taxed twice.
Taiwan's central bank Governor Perng Fai-nan (彭淮南) said he also supports direct exchange of funds between local and Chinese banks to reduce foreign-exchange transaction costs for Taiwan companies transferring money back to Taiwan, the local Chinese-language mediar reported earlier.
The two proposals are among 322 recommendations made by a committee of academics and business leaders advising the government on how to revive the economy, which shrank for the first time in 26 years in the second quarter.
"Maintaining a low tax burden is vital in keeping Taiwan companies competitive," Yen said.
The committee also recommended direct transport links with China, and allowing Chinese to invest in Taiwan real estate, companies and shares.
Taiwan's economy contracted 2.4 percent in the second quarter from a year earlier as exports of computers, mobile phones and semiconductors fell. The government expects the economy to shrink 0.4 percent this year.
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