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Updated Saturday, December 15, 2007 0:00 am TWN, The China Post news staff



	Hsieh Chin-ho, Director of the Wealth Group was one of the many guests invited to speak at an ECCT monthly luncheon in 2007. (Courtesy of ECCT) More Photos (2)

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ECCT-KPMG Comparative Study reveals room for improvement in Taiwan’s tax environment

1. Corporate tax rate: Taiwan’s corporate tax rate (25%), while reasonable on a global comparison basis, is higher than that of other countries in the Asia Pacific region such as Singapore (20%) and Hong Kong (17.5%). A lower corporate tax rate would be an important factor in making Taiwan more competitive and attracting investment. The government should therefore lower corporate tax rates.

2. Tax incentives: The current tax incentive programs are applicable to a few selected industries, particularly the high tech sector and are regarded as being less favorable than those of neighbouring economic rivals. The government should look at countries like Singapore, which offers extensive tax incentives to a range of industries such as the service industry, to more effectively support its policy to develop Taiwan into a service-based economy.

3. Loss Carry Forward (LCF): The 5-year tax loss carry-forward (LCF) period under the current Taiwan Income Tax Law is far too short for certain industries that incur considerable losses at the beginning of the business operation and will not start to make a profit until several years have passed. As noted above the CEPD has announced plans to increase the LCF to 10 years, which is an improvement but does not go far enough as rival economies often have indefinite LCF periods.

4. Withholding Tax (WHT): Taiwan’s 20% nominal withholding tax (WHT) rate for dividends, interest and royalties is higher than neighboring countries such as China (0~10%), Hong Kong (0~5.25%), Singapore (0~15%) and Malaysia (0~15%). Since many MNCs outsource services to overseas vendors, the high WHT rate in Taiwan adds significantly to costs. Moreover, with Taiwan having only a limited number of double-tax treaties in place, the effective WHT rate in Taiwan is often even higher when compared to many other Asia Pacific countries. Hence, the government should lower the withholding tax rate to stay competitive.

5. Personal income tax and employment income: Taiwan’s effective tax rate for individuals is noticeably higher than regional rivals and the government should either lower the individual tax rate or take measures to lower this effect.

Apart from the above, the Taiwanese government’s current lack of a clear “Tax Roadmap” – i.e. transparency in what future development of tax rates and tax incentives can be expected - is hurting Taiwan tremendously since investors shy away from making investment decisions under this kind of uncertainty. This is highlighted in situations where high-level executives of MNCs are required to make business plans years ahead. Without a clear direction on the impending tax development, when choosing target countries to invest in, it is very likely the executives will remove Taiwan from their choice of country. Investors need clarity and certainty. The uncertainty of the next tax move is considered to be a major debilitating factor in an investment plan that many executives are striving to avoid.

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