The set of amendments to the Income Tax Act (所得稅法) that cleared the legislative floor on Thursday last week represents the most ambitious tax reform plan the nation has had in two decades. However, the US’ overhaul of its taxes is a wake-up call for Taiwan over the need to compete for talent and investments.
The Taiwanese tax reform plan removes the highest marginal income tax rate of 45 percent from the individual income tax rate brackets and halves the tax rate on corporations’ undistributed earnings to 5 percent, but raises the corporate income tax rate from 17 to 20 percent, with the rate for small and medium-sized enterprises to rise in annual increments of 1 percentage point over three years.
To narrow the gap between tax rates for domestic and foreign investors, the amendments include a 1 percentage point increase in foreign investors’ dividend income tax rate and provide two options for domestic investors to calculate their dividend taxes.
The plan also increases various tax deductions for wage-earners, parents of preschoolers and disabled people, which is expected to benefit 5.42 million people with a reduction of NT$10,000 to NT$15,000 (US$340 to US$510) on average in income taxes, according to government estimates.
Overall, the nation’s tax reform focuses more on tax fairness and wealth redistribution, compared with the US tax cut that makes a tremendous effort to increase domestic investment.
However, even though the government is likely to lose about NT$56.2 billion in tax revenue over the first three years, because the latest tax cuts should benefit wage-earners and domestic stock investors, average disposable incomes might increase by NT$38.8 billion a year and that should give a modest boost to domestic demand, Minister of Finance Sheu Yu-jer (許虞哲) said on Friday.
In other words, even though the reforms could inflict short-term pain, they cannot be a bad thing in the long term. Given the constraints the government faces and considering the nation’s needs, the tax reforms overall appear wise.
However, Taiwan should rethink the competitiveness of its corporate tax structure after the US’ tax overhaul reduced its taxes to among the lowest in the developed world.
Following the 3 percentage point increase, Taiwan’s corporate tax rate remains low compared with the US’ 21 percent, the average rate of 24.7 percent in European nations, South Korea’s 22 percent and China’s 25 percent, but it is still higher than Hong Kong’s 16.5 percent and Singapore’s 17 percent.
Moreover, the US tax overhaul offers a one-off tax break on cash held overseas in addition to a dramatic reduction in the corporate tax rate, which could lead large US companies, such as Apple Inc, Microsoft Corp and Pfizer Inc, to return US$1.6 trillion to US$2 trillion in offshore deposits to the US, according to DBS Bank’s estimates.
As openness to trade, capital flows, movement of labor and the exchange of technology have made the world more interconnected than ever, the US’ tax reforms are certain to have an effect on other economies. The Taiwanese government needs to consider more tax incentives to stem the outflow of talent and protect local industries, while looking at structural changes in the tax base.
Meanwhile, whether the US’ tax reforms will attract more investments by Taiwanese companies and whether they will relocate some of their production to the US depends on the firms. An improved manufacturing environment in the US after the tax overhaul could trigger a global supply chain reshuffle to which local businesses need to pay attention.
A return to power for former US president Donald Trump would pose grave risks to Taiwan’s security, autonomy and the broader stability of the Indo-Pacific region. The stakes have never been higher as China aggressively escalates its pressure on Taiwan, deploying economic, military and psychological tactics aimed at subjugating the nation under Beijing’s control. The US has long acted as Taiwan’s foremost security partner, a bulwark against Chinese expansionism in the region. However, a second Trump presidency could upend decades of US commitments, introducing unpredictability that could embolden Beijing and severely compromise Taiwan’s position. While president, Trump’s foreign policy reflected a transactional
Chinese President Xi Jinping (習近平) has prioritized modernizing the Chinese People’s Liberation Army (PLA) to rival the US military, with many experts believing he would not act on Taiwan until the PLA is fully prepared to confront US forces. At the Chinese Communist Party’s 20th Party Congress in 2022, Xi emphasized accelerating this modernization, setting 2027 — the PLA’s centennial — as the new target, replacing the previous 2035 goal. US intelligence agencies said that Xi has directed the PLA to be ready for a potential invasion of Taiwan by 2027, although no decision on launching an attack had been made. Whether
A chip made by Taiwan Semiconductor Manufacturing Co (TSMC) was found on a Huawei Technologies Co artificial intelligence (AI) processor, indicating a possible breach of US export restrictions that have been in place since 2019 on sensitive tech to the Chinese firm and others. The incident has triggered significant concern in the IT industry, as it appears that proxy buyers are acting on behalf of restricted Chinese companies to bypass the US rules, which are intended to protect its national security. Canada-based research firm TechInsights conducted a die analysis of the Huawei Ascend 910B AI Trainer, releasing its findings on Oct.
In honor of President Jimmy Carter’s 100th birthday, my longtime friend and colleague John Tkacik wrote an excellent op-ed reassessing Carter’s derecognition of Taipei. But I would like to add my own thoughts on this often-misunderstood president. During Carter’s single term as president of the United States from 1977 to 1981, despite numerous foreign policy and domestic challenges, he is widely recognized for brokering the historic 1978 Camp David Accords that ended the state of war between Egypt and Israel after more than three decades of hostilities. It is considered one of the most significant diplomatic achievements of the 20th century.
RSS