Taiwan's parliament is scheduled to discuss a draft of Article 10-2 of the 'Industrial Innovation Act' tomorrow. This could be highly impactful in Taiwan, and worldwide, as it is being characterized as Taiwan's own CHIPS Act. Overall, this legislation looks like an understandable reaction to the recent flight of semiconductor investments out of Taiwan.
A proposed Taiwan CHIPS Act will be reviewed by officials on Thursday, media report, with R&D investment credits, tax breaks for an "unlimited" amount of advanced #semiconductor mfg equipment, more, as Taiwan moves to combat subsidies, incentives from other nations. $TSMNovember 16, 2022
The key attraction of the Industrial Innovation Act for domestic businesses, and what is hoped that will help steer investment back into the island, is a 25% tax break on R&D expenses for high-tech companies. There are also going to be tax breaks on the purchase of manufacturing equipment, compensated with up to an additional 5% cut in tax. Thus it could be possible to see tech businesses in Taiwan enjoying and attractive and healthy 30% tax reduction.
According to reports from sources like Taiwan's Central News Agency (CNA), the amendments to business taxation will be discussed by the ministers of the government's Executive Yuan on Thursday. It is widely expected that the amendments, with the tax breaks, will be then passed to the Legislative Yuan for further deliberation and voting.
The Taiwanese Ministry of Economic Affairs' official explanation for the new 'Taiwan CHIPS Act' is that it will encourage homegrown tech businesses like TSMC, MediaTek, GlobalWafers, UMC, Phison etc to invest more in Taiwan, especially for advanced research and development. This and the tax break for equipment purchases should encourage breakthroughs in advanced manufacturing on Taiwan's home turf.
Regular readers will be well aware that big Taiwanese tech businesses have increasingly been attracted to build facilities in countries like the USA and Japan since the tightening of US tech sanctions on China. However, highly important and strategic businesses like TSMC have pledged to keep leading edge plants in Taiwan. Whether the Taiwan CHIPS Act will be successful in rebalancing internal and outside investments to the extent the government wishes, remains to be seen. Foregoing tax revenue in the short term, with these tax breaks, must be seen to be working or political opponents will highlight this policy in the presidential elections in 2024.