Business tax for financial institutions to be annulled in 2011

Taipei, Jan. 17, 2005 (CENS)--The business tax imposed on financial institutions will be dropped starting 2011 from the existing rate of 2%, according to a consensus reached at a recent session of the Legislative Yuan.

Since 1999, the government has cut the business tax on financial institutions to 2% from 5%, allowing them to use the earnings resulting from the tax cut to write off their bad loans. But based on the latest consensus of legislators, banks with non-performing loan ratio of under 1% will be required to contribute the earnings ensuing from the business tax reduction to the financial restructuring fund, also known as RTC fund supervised by the Cabinet-level Financial Supervisory Commission, or to the deposit insurance fund managed by Central Deposits Insurance Corp.

FSC's statistics showed that as of the end of November 2004 six domestic banks recorded NPL ratios of below 1%, including Cathay United Bank, Bank Sinopac, E. Sun Bank, International Commercial Bank of China (ICBC), Industrial Bank of Taiwan (IBT), and Export-Import Bank of ROC.

FSC officials analyzed that the 3% business tax would significantly help enrich the coffers of the RTC fund or the deposits insurance fund. Banks, however, might not be willing to lower their NPL ratio to under 1% because they would no longer be able to use the earnings from the tax reduction to cut their bad loans.

Domestic banks with NPL ratio of below 1% as of November 2004
Bank	NPL ratio (%)
Cathay United Bank	0.80
Export-Import Bank	0.12
ICBC	0.83
IBT	0.00
Bank Sinopac	0.86
E. Sun Bank	0.98

Source: FSC