Taiwan Mulls Corporate Tax Cut

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

10 September 2007

A senior finance ministry official has indicated that the Taiwanese government is keen to cut the country's rate of corporate tax to attract more investment, but suggested that this is unlikely to take effect until 2009 at the earliest.

Chang Sheng-ford announced on Wednesday that the 25% corporate tax rate could be cut to 16.5% or lower, but revealed that this would not happen until the Statute for Upgrading Industries has expired in 2009. This statute was promulgated in 1990 "for the furtherance of industrial upgrading and the betterment of economic development".

A cut in corporate tax to 16.5% would put Taiwan on a par with Hong Kong, perhaps the most successful economy in the region.

A corporate tax cut could be included in a tax reform package being considered by Taiwan's Council for Economic Planning and Development, which aims to improve the business environment. Such a plan is widely supported by the business community and could be announced later this year. However, the plan is unlikely to gain legislative approval before the end of 2009.

Under tax reforms enacted last year, businesses and certain individuals in Taiwan are subject to a minimum tax, which was brought in to stop widespread tax avoidance.

The 'Alternative Minimum Tax' requires companies to pay a 10% tax on earnings of more than NT$2 million (US$61,000) and individuals to pay a 20% tax on annual income exceeding NT$8 million.

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

However, the Ministry had to fend off criticism which suggested that the minimum tax would lead to a reduction in foreign investment in Taiwan, pointing out that the tax would only affect about 0.7% of Taiwan's 600,000 companies and only around 15,000, or only 0.2% of individual taxpayers.

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