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Taiwan had long relied on tax exemption to support the development of some
industries, which resulted in unfair taxation among different industries.
Moreover, businesses that were granted tax exemption or deduction also lacked
basic contribution to the country＇s tax revenue. Therefore, the Ministry of
Finance learned from the minimum tax systems of the USA, Canada, South Korea
and India, and enacted the “Basic Income Tax Act,＂ which was announced on
December 28, 2005 (Hua-Zong-Yi-Yi-Zih No. 09400212601) and effective from
January 1, 2006.
Since the minimum tax system was initiated, two years (2006 and 2007) of
business income tax returns (including basic tax) have been filed. Before this,
companies in Hsinchu Science Park had enjoyed 5-year tax exemption and
investment tax credit; therefore, it was estimated that the minimum tax system
would have the greatest impact on these companies. This study, based on the
business income tax return data from 2004 to 2007, intends to find out the
influence of the minimum tax system on the businesses in Hsinchu Science Park
before and after it was implemented.
The results are as follows:
1. In response to the Alternative Minimum Tax, business will attempt to make
its general income tax ≧ basic income tax. In order to minimize its tax
payable, business tends to adjust its investment tax credit to make general
income tax ≧ basic income tax. The maximum investment tax credit is [taxed
income*15％-(securities trading tax exemption, futures trading gain or
loss + income exemption included in basic tax + exemption on international
financing branch income) *10％+190,000].
2. The implementation of the Alternative Minimum Tax has revealed the fact
that business will not change its investment simply due to the system.
Business will deduct the previous five years＇ amount of loss to avoid a
vain action of choosing income exemption first, for the income exemption
it is supposed to have will be added back to basic income in the minimum
tax system. Therefore, income exemption will still be deducted from its
full-year income regardless of the fact that income exemption will be
included in the tax base in the minimum tax system.
3. It is found from the sample data that from 2004 to 2007 the companies＇
nominal tax rate of business income tax was 25%, but their actual tax rates
were 2.14%, 7.23%, 10.83%, and 18.15%, respectively, after investment tax
credit was deducted from business income tax according to Industry
Promotion Act and other laws. The minimum tax system has prompted
businesses in Hsinchu Science Park to make their basic contribution to the
country＇s tax revenue. However, from the angle of business, where
effective tax rate is acquired by dividing the total amount of tax by the
total amount of income, these companies＇ effective tax rates from 2004
to 2007 were 1.11%, 3.42%, 5.44%, and 10.89%, respectively, which were far
lower than their nominal and actual tax rates.
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