Taiwan: Offer Tax Breaks In Return For Wage Hikes

Corporate income tax breaks for SMEs paying wages to lower-level employees is one step closer to being law, having passed its first committee review in Taiwan's Legislative Yuan.

If enacted, the proposal will mean that when unemployment reaches a certain level a 130% tax deduction against corporation tax will kick-in. The deduction would be allowed relative to the increase in payroll expenses for existing, domestic, entry-level employees (but would not include rises as a result of an increase in the statutory minimum wage or increases to wages to more senior employees).

It is hoped that the new rules will encourage SME’s to increase the wages of their lower paid workers, and as a result, raise domestic spending and economic growth. SMEs represent 98% of all businesses in Taiwan, some 1.3 million and employ 78% of the nations workers.   

The Government anticipates that the amendment will encourage about one-third of SMEs, or 430,000 businesses, to increase salaries. The 1.3m SMEs in Taiwan, which represent almost 98 percent of businesses in the country, employ 8.5 million workers or 78 percent of all employees.

There is obviously a trade off with reducing corporate tax revenues – however, the Government predicts that the increases in income tax as a result of the wage increases and indirect business tax increases as a result of increased consumption will outweigh the lost corporate taxes.

The measures will need to meet final approval before the end of this year prior to being implemented.