TAIPEI, Taiwan - The Cabinet yesterday passed an amendment to legislation that governs tax payment by small- and medium-sized enterprises, allowing companies that grant raises to employees to receive favourable tax treatment.
In an effort to encourage companies to make more investments and increase hiring, the Ministry of Economic Affairs (MOEA) initiated the proposal in the hopes of enhancing the nation's overall salary level.
The legislation in question was the Act for Development of Small- and Medium-sized Enterprises. With the amendment, 30 per cent of the amount of the will be made tax deductible.
Deductible Amount Calculation
The amount of the raise dictated by the government will not be factored in when calculating deductibles.
In a scenario where a company grants a raise of 20 per cent, total human resource costs might increase from NT$5 million (S$208,000) to NT$6 million.
Say 8 per cent (NT$400,000) of the one million raise met the government's raise requirement, then the rest of the 12 per cent raise (NT$600,000) will then be counted toward a higher deductible.
The amount of deductable is 30 per cent of the NT$600,000 raise, or NT$180,000. And the company's total human resource cost deductable will be NT$6.18 million (NT$6 million plus NT$180,000).
There are three conditions that must be met in order to qualify for beneficial tax treatment. First, this new rule applies only to small- and medium-sized enterprises. Second, raises have to be granted to base-level employees; raises for supervisors and managers will not be considered. Third, raises must be given to Taiwan nationals.
There are also clauses in the amendment that stipulate certain "economic indicators" as a precondition for salary raises. Competent authorities will determine the right economic condition based on a number of factors, including economic growth rate, price level, consumption, performance of various sectors, etc.
Government Wants Quick Implementation
The MOEA previously discussed the proposal with the Ministry of Finance (MOF), which at first was uncertain about the tax deduction and worried it would undercut its tax revenues. However, after a study conducted over a couple of months, the MOF decided it would only have a limited impact on tax revenues and allowed the proposal to go ahead to the Cabinet.
Economic Affairs Minister Chang Chia-juch said he hopes the amendment may clear the Legislature in the next session. Once the amendment is passed, companies may start giving raises next year and will therefore be able to realise tax benefits in the following year.
There are a total of 1.3 million small- and medium-sized enterprises in Taiwan, comprising 97.67 per cent of all local businesses. They employ 78 per cent of the local population, equaling 8.5 million people.
Chang estimated that the new legislation will drive a third of small- and medium-sized enterprises, or 430,000 companies, to give raises.
Premier Jiang Yi-huah said yesterday that improving the job market and enhancing the national salary level are two primary policy objectives for the government. He called on the MOEA to communicate with all related parties in order to pass the law as soon as possible.