Amendment to the Agricultural Development Act: large farmers to pay taxes, small farmers to remain tax-exempt
In March, Shih An Ranch was ruled against by the Supreme Administrative Court: although what it sells is a primary agricultural product - eggs - which by law should not be taxed, it must be taxed because of its massive scale and corporate-style operation, leaving many farmers worried whether the situation of "farming means tax-free" no longer holds?
To solve the problem, the Legislative Yuan today (the 4th) proposed amending the "Agricultural Development Act." Legislators put forward a draft explicitly stating that in the future, sole proprietorship or partnership "farms" with corporate-style operation, profit orientation, and a business scale that is "large enough" must register with the Council of Agriculture. For the first five years they may be exempt from profit-seeking enterprise income tax, and after five years they must pay profit-seeking enterprise income tax.
However, the executive and legislative sides disagree on what counts as "large enough" in scale. Council of Agriculture Deputy Minister Chen Chi-chung said that farming, livestock raising, and poultry breeding are diverse and complex, making it difficult to divide them by scale; but Legislator Tsai Pei-hui believes that with the rise of new-type farms, such as plant factories and other profit-seeking businesses, if scale-based taxation is not explicitly stipulated, would that violate the principle of tax fairness? At the same time, unscrupulous companies might use farmers as fronts to operate farms and evade taxation, so she insists that taxation must be based on scale.
The Shih An Ranch ruling will become a common precedent
In terms of business tax, as long as farmers produce primary agricultural products or processed goods, they are exempt from business tax regardless of production scale. As for individual consolidated income tax, as long as farmers meet the definition in the "Agricultural Development Act" (abbreviated as the "Agricultural Development Act") - those directly engaged in agricultural production - their income is treated as cost under tax law. For example, if rice farming income is 300,000 yuan, the cost is deemed to be 300,000 yuan, and after deduction the net profit is zero, so they are naturally tax-exempt.
However, in March of this year, Shih An Ranch was ruled by the Supreme Administrative Court to be required to pay tax, on the grounds that Shih An Ranch, due to its organizational form, capital, site, equipment, manpower scale, and brand building, has moved toward corporate development, and actively expands channels and cooperates with the industry, with a strong profit motive, which differs from the reason most agricultural taxes are exempted - "self-cultivation" - and therefore it must pay tax.
In the future, should this type of farmer, organization, or enterprise that is organized at the agricultural site, can hire workers, and is profit-oriented, but has no business registration in law, all be subject to taxation under a unified standard? To resolve this controversy, yesterday (the 4th) the Legislative Yuan specially added Article 47-1 to the "Agricultural Development Act" to provide clear regulations for similar cases.
The draft explicitly states that as long as sole proprietorship and partnership "farms" register with the Council of Agriculture under the newly added article, they will need to pay profit-seeking enterprise income tax in the future, but within the 5 years of the new law's amendment, they may be exempt. And which "farms" must register with the Council of Agriculture? That will be decided by the Council of Agriculture and the Ministry of Finance themselves.
How is the scale for taxation determined? Executive and legislative opinions diverge
Council of Agriculture Deputy Minister Chen Chi-chung said that previously, together with the Ministry of Finance, they sought opinions from academia and found that most operators opposed using "scale" as the tax-exemption standard, because the standard is complex: should it be calculated by the number of head in livestock raising, or by cultivated area? Or by turnover? If rigidly stipulated, there would be difficulties in determination.
However, Legislator Tsai Pei-hui holds a worried view, believing that defining "scale" is necessary. First, agriculture in the future may indeed become a money-making industry, such as plant factories and plant farms operated with solar photovoltaic power, "can they really be exempt from tax without any upper limit?"
At the same time, not defining scale also creates the possibility for unscrupulous operators to use farmers as fronts to run farms and evade preferential treatment. Chen Chi-chung, however, believes that if scale is set, some operators may split into many small farms to evade management, so it will be discussed again on September 1 and at the next legislative session.
"Cooperatives" exempt from profit-seeking enterprise income tax? Ministry of Finance: discuss again
In addition, Chen Chi-chung also said on the spot that he hopes agricultural cooperatives with farmers as shareholders can be included in the tax-exemption scope. However, Lee Ching-hua, Director-General of the Taxation Administration under the Ministry of Finance, said that including cooperatives is "rather abrupt" and still requires further study and discussion, and he hopes to focus on the articles currently under discussion in the Legislative Yuan, and discuss again later if needed.
If the "Agricultural Development Act" amendment passes in September, in the future if agricultural enterprises have a corporate form and registration, they will be managed under the "Company Act"; and "farms" like Shih An Ranch that are unregistered but meet the Council of Agriculture's definition requiring registration must register, and can enjoy a 5-year exemption from profit-seeking enterprise income tax, while the Executive Yuan may decide based on circumstances whether to extend the tax-exemption period.