TAIPEI, Taiwan - Economic Affairs Minister Tyzz-jiun Duh predicted yesterday that one-third of the nation's enterprises may increase the salaries of their workers in order to earn a tax deduction.
Minister Duh said that after Article 36-2 of the Act for the Development of Small and Medium Enterprises passed its preliminary review in the Legislature yesterday, one-third of the nation's small- and medium-sized enterprises might agree to a pay raise, according to local media reports.
Article 36-2 proscribes that when the unemployment rate rises above 3.78 per cent, enterprises may decrease their taxes by increasing the wages of employees earning less than NT$50,000 (S$2,096) monthly.
These enterprises may also deduct their profit-seeking enterprise income tax by 30 per cent if they allow salary upgrades.
Duh said that countries such as mainland China and Singapore are all recruiting competitive Taiwanese employees to work abroad. If Taiwanese enterprises do not offer decent wages, their employees will seek opportunities elsewhere.
The Economics Committee of the Legislative Yuan supports the Legislative Yuan in passing Article 36-2. However, many legislators said that a 30-per cent tax deduction is too low and the Ministry of Economic Affairs must evaluate the influence of different amounts of deductions on the tax revenue of the government.
Legislators including Yang Chiung-Ying proposed amendments containing a 50- to 60-per cent tax deduction and sent these proposals along with the Executive Yuan's 30-per cent tax deduction version to the Legislative Yuan for review.
Duh said that if small and medium-sized enterprises - a third of the nation's enterprises and numbered at 430,000 - increase their employees' salaries by 3 per cent, the government's tax revenue will suffer a NT$307 million loss.
However, the pay raise will prompt an increase of NT$394 million in consolidated income tax and an increase of NT$230 million in business tax.
The government would earn NT$314 million in net profit in tax revenue, if there is a pay rise. Furthermore, people will be encouraged to spend an additional NT$4.604 billion on consumer goods.
During the interpellation session, Legislator Lin Tai-hua said that the owners of the enterprises might find a loophole in the act, namely raising pay to bring about a tax deduction and then lowering it the following year.
Department of Labor Standards and Equal Employment Senior Executive Officer Huang Wei-chen said that, according to the law, the employers cannot cut pay as they please.
Employers who are found guilty of this may be fined NT$20,000 to NT$300,000, and they are required to compensate employees' wage losses within a strict time frame.
Duh said that this pay-raising measure is an economics lifebuoy. This measure will only be passed when there is a recession or if salaries are on the low side.