Taiwan Cabinet Approves Minimum Tax Plan

by Mary Swire, Tax-News.com, Hong Kong

02 September 2005

The government of Taiwan has confirmed plans for a minimum tax in a bid to ensure that companies and wealthy individuals make some kind of contribution to tax revenues.

According to an announcement following a weekly meeting of the Cabinet on Wednesday, the Alternative Minimum Tax will require companies to pay a 10% tax on earnings of more that NT$2 million (US$61,000) and individuals to pay a 20% tax on annual income exceeding NT$8 million. Income below these amounts would be subject to existing income tax laws, including current legal exemptions, deductions and rates.

The calculation of the minimum income tax levy for individuals applies to combined net income under existing rules, along with deductions such as for life insurance or pensions payments, transaction tax in unlisted stocks or bonds, non-cash contributions and employee dividends.

It is estimated by the Ministry of Finance that the new taxes will bring in an additional NT$10 billion in revenues, a figure that will increase as average per capita income grows.

"The whole idea of this new mechanism is to find fair tax rules for our country," commented Minister of Finance Lin Chuan, who stressed that the new tax will only affect 0.84 percent of Taiwan's 600,000 companies and only around 15,000, or only 0.2 percent of individual taxpayers.

"The basic significance of the minimum income tax system is that any enterprise or individual with high incomes and who enjoy relatively large tax incentives or deductions should pay at least some income tax," he explained.

The government has decided to omit overseas income from the Alternative Minimum Tax. However, Lin stated that this decision is likely to be reviewed in future years.

The draft bill will now be referred to the Legislature, which will consider the proposals in the next parliamentary session.

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