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Taipei, Jan. 18 (CNA) The Legislative Yuan approved Thursday a tax reform bill that increases four types of tax deductions, which is expected to exempt nearly 50 percent of salary earners who earn less than NT$408,000 (US$13,800) per year from taxes.

Under the amendments to the Income Tax Act, the personal standard deduction of comprehensive tax will be raised from NT$90,000 to NT$120,000, while the special salary deduction and a special deduction for those with physical or mental disability will be increased from NT$128,000 to NT$200,000.

In addition, a special deduction for pre-school children will be raised sharply from NT$25,000 to NT$120,000.

After the new law comes into effect next year, over 5 million people will see a reduction of NT$10,000-NT15,000 on average in their income taxes when filing their tax returns in 2019, said opposition Kuomintang Legislator Tseng Ming-chung (曾銘宗).

Meanwhile, the corporate income tax rate for companies with an annual taxable income exceeding NT$120,000 will be raised from 17 percent to 20 percent, while the rate for small- and medium-sized enterprises (SMEs) with taxable income less than NT$500,000 will be raised to 18 percent, 19 percent and then 20 percent over the next three years, according to Minister of Finance Sheu Yu-jer (許虞哲), who estimated that 110,000 SMEs will be affected by the new rate.

Under the tax reform bill, the imputation tax system for investors will be abolished and a new dividend tax system will be established that will allow taxpayers two options for paying their dividend income tax: A flat rate of 28 percent on their dividend; or the dividend taxed as part of their personal income with an 8.5 percent deduction on dividend earnings and a maximum deductible of NT$80,000.

(By Chen Chun-hua and Evelyn Kao)
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