Government may impose quota control on tax incentives for emerging industries

This article was published by the Taiwan Headlines on May 11, 2006. It reports that in an attempt to solve the problem of abusive application of industrial tax incentives, the Ministry of Finance and the Ministry of Economic Affairs are jointly studying the feasibility for imposing general quota control on five-year tax holidays for emerging strategic industries.

Under the proposed system, cases for the incentive of five-year tax holiday will be judged on a case-by-case basis under the control of general quota. Once the quota is used up, the incentive will no longer be available.

Specifically, the proposed system will scale down the existing tax incentives for enterprises. These include tax incentives for emerging strategic industries, and functional tax incentives for the encouragement of research and development and industrial upgrading.

In 2006, there are 9 industries and 305 products that are eligible for the five-year tax holiday. Upon the proposed system, the government will set a definite number of companies that are eligible for the incentive of tax exemption for these industries and products. Once the quota is filled, companies under the same industry or with the same product will be denied access to the tax incentive.

Currently, almost all companies that comply with the conditions for emerging strategic industries can enjoy five-year tax holiday as long as they file applications with the Ministry of Economic Affairs.

The existing Statue for Industrial Upgrading offers two kinds of tax incentives, which are five-year tax holiday and investment tax credit. According to statistics provided by the Ministry of Finance, total value of the tax incentives amounted to NT$54.7 billion in 2001, including NT$27.6 billion for high-tech industries. This value jumped to NT$169.4 billion in 2004, including NT$109.6 billion for high-tech industries. The value is expected to surpass NT$200 billion in 2005.

The existing Statue for Industrial Upgrading will expire at the end of 2010. Currently, the Ministry of Finance and the Ministry of Economic Affairs are discussing principles in the revision of the statue, in order to complete a draft of the revision by June 2007 and send it off to the Legislative Yuan for further deliberation.