CONCERN: Revenue would be reduced by NT$3.47bn with each NT$10,000 rise in the deduction threshold, which could affect the nation’s financial security
By Chen Wei-han / Staff reporter
The Cabinet yesterday approved a major tax reform package that is expected to benefit more than 5 million taxpayers, while also approving an amendment to the procurement law that grants the government greater flexibility in choosing the most advantageous tender, rather than the lowest.
A draft amendment to the Income Tax Act （所得稅法） would increase the deduction thresholds on personal income taxes and lower the cap on the personal income tax in addition to abolishing the imputation tax system for investors, while raising the corporate income tax from 17 percent to 20 percent.
The amendment proposes an increase in the personal deduction threshold from NT$90,000 to NT$110,000 （US$2,979 to US$3,641）, and an increase to the thresholds for salary and disability deductions from NT$128,000 to NT$180,000.
Taxpayers would be allowed to choose between two tax treatments for their dividend earnings: A flat rate of 26 percent or the dividend being taxed as part of their personal income while enjoying an 8.5 percent deduction on dividend earnings, with a maximum deduction of NT$80,000.
If the amendment receives legislative approval by the end of the year, it could be implemented by the next fiscal year and 5.42 million taxpayers and 620,000 people with disabilities would see a tax bill reduction in 2019, the Ministry of Finance said.
There would be a NT$39.8 billion reduction in personal tax income earnings, which would be compensated for with a NT$26.5 billion increase in corporate tax income and a NT$6.4 billion increase in dividend tax on foreign investors, resulting in a total loss of NT$6.9 billion in annual tax revenue, the ministry said.
While lawmakers have proposed to further raise the threshold for salary deductions, Minister of Finance Sheu Yu-jer （許虞哲） said tax revenue would be reduced by NT$3.47 billion with each NT$10,000 increase in the deduction threshold, adding that lawmakers should take into account national financial stability.
To prevent corporate tax evasion by the establishment of charity, educational or medical organizations, the amendment would also tax the dividend earnings of such organizations, Sheu said, adding that the next phase of tax reform is revising the tax exemption criteria for non-profit organizations.
While the amendment would raise the tax on dividends of foreign investors from 20 percent to 21 percent, it would not affect investors from the 32 nations that have signed tax agreements with Taiwan, he said, adding that most tax agreements stipulate a 10 percent tax rate for foreign investors.
A draft amendment to the Government Procurement Act （政府採購法） was also approved.
The amendment scraps limits on the government accepting the most advantageous tender bid. Currently, the most advantageous tender can only be accepted if a contractor can provide construction work or services that are different from other contractors, or only if it is determined that the lowest tender should not be accepted.
As there is no clear criteria in the act to define how construction work is “different” or why the lowest tender should not be accepted, government officials tend not to choose the most advantageous tender to avoid legal issues, Public Construction Commission Minister Wu Hong-mo （吳宏謀） said.
“In the past, less than 10 percent of public construction projects accepted the most advantageous tender, but the percentage has grown to more than 50 percent as the government has encouraged the adoption of the most advantageous tender in major infrastructure projects,” Wu said.
The lowest tender does not necessarily guarantee quality work, Wu said.
The amendment also prohibits contractors from participating in government tenders for three years if they are found guilty of bribery.