Parliament voted to cut the business income tax from 20 to 17 percent to encourage high-tech development and the return of overseas-based Taiwan enterprises, the island's semi-official Central News Agency reported on Saturday.

The tax cut takes effect retrospectively from Jan. 1 and is the latest government measure to raise Taiwan's competitiveness as trade rivals such as South Korea and the Association of Southeast Asian Nations (ASEAN) members gain ground.

"We considered Taiwan's economy and wanted small to mid-sized companies to be able to compete," said ruling party legislator Yang Lee-huan. "We looked at other countries that had rates of 15 or 18 percent. Our companies had urged us to pass this change."

The tax cut follows government efforts to help local firms hurt by last year's global downturn that tore into Taiwan's export-led, tech-reliant economy.

It also precedes the likely signing of a broad trade deal with China expected to slash tariffs and impact smaller, more traditional Taiwan industries as cheaper Chinese goods reach the island's consumers.

Taiwan officials have said they would assist industries hurt by the economic cooperation framework agreement (ECFA) with China.