In the News

Government mulls reduction in R&D tax incentive

The government intends to cut tax credits businesses can claim on their research and development expenses. (CNA)

• Publication Date：04/20/2010
• Source： Commercial Times

The Executive Yuan is considering a proposal that would cut by half a tax incentive that encourages research and development among the nation’s businesses, sources familiar with the issue said April 19.

The proposal is closely related to an amendment expected to pass the Legislature within the next few days.

As put forth by the ruling Kuomintang, the amendment would reduce the business income tax rate to 17 percent. A rival version of the same bill, which would reduce the rate to 17.5 percent, has been proposed by the opposition Democratic Progressive Party. Many businesses currently pay a 25 percent income tax rate.

The KMT and the DPP are scheduled to hold an interparty negotiation session April 23. If they fail to resolve their differences during the session, legislators will settle the issue by a formal vote. The new rate will be retroactive and be effective from January 1, 2010.

Since the tax-reduction amendment could result in reduced taxes for the government’s coffers, both the Ministry of Economic Affairs and the Ministry of Finance have endorsed a reduction in R&D tax credits as a way to make up for lost revenue, sources said.

At the moment the government supports R&D efforts through tax credits in the amount of more than NT$20 billion (US$635.08 million) per year. If the plan currently being mulled by the Executive Yuan is approved, these credits would be cut by half to NT$10 billion.

Under the proposed plan, brand promotion efforts and marketing campaigns cannot be used for tax reductions, sources said. Furthermore, subsidies would gradually replace tax credits as the primary form of incentives to encourage significant corporate R&D projects of a forward-looking nature.

In addition, the amount of claims will be reduced from 35 percent to 15 percent of such expenses, with the maximum amount of savings capped at 30 percent of the tax payable of the year in which these expenses incur. No deferred tax credits will be allowed in this regard.

In a move to encourage the country’s small and medium-sized enterprises to upgrade their operations, the MOEA will also offer subsidies to encourage their projects aimed at industrial innovation. (SFC-HZW)