Capital-gains tax proposal shot down

Amid opposition from academics, Minister of Finance Lin Chuan (林全) yesterday vetoed a controversial proposal to levy a capital-gains tax on income from stocks (證所稅), easing a possible panic to local stock investors.

"Reforms take a long time to realize and we don't want to rush this and then negatively impact the stock-investment environment," Lin said at the ministry's financial committee yesterday.

The proposal, prepared by Sun Ke-nan (孫克難), a research fellow at the Chung-hua Institution for Economic Research (中經院), argued that a fair and reasonable tax system should be implemented in the local stock market by canceling the current tax-free treatment on stock earnings.

The government currently only levies only a 0.3-percent securities-exchange transaction tax (證交稅), creating a tax haven for earnings from equities.

As an academic, Lin was an advocate of a capital-gains tax in 2000. As a mastermind behind then presidential candidate Chen Shui-bian's (陳水扁) financial policies, Lin penned the proposal for Chen's white paper, triggering such controversy that Chen was forced to promise the next day not to raise taxes during his term.

When Lin came to head the finance ministry in December 2002, market watchers speculated that he may push for the tax, which had toppled two former finance ministers, including Shirley Kuo (郭婉容) in 1989 when the TAIEX fell for a 19 consecutive days.

Lin is not keen to rock the boat, siding with entrepreneurs who said that the tax would spook investors and put corporate fund-raising channels at risk.

"[If the new tax is implemented] Taiwan will have problems attracting foreign capital to invest in the stock market," said Theodore Huang (黃茂雄), chairman of the Chinese National Association of Industry and Commerce (工商協進會).

Sharing a similar view, vice chairwoman of the Council for Economic Planning and Development Ho Mei-yueh (何美玥) said that no sudden change should be made to the market.

But Chen Ting-an (陳聽安), an economics professor at the National Cheng-chi University, said that the tax injustice has lasted for years and the government needs to review the policy.

Another hotly debated proposal was whether the government should end "inappropriate tax breaks," laid down in the "Statute for Upgrading Industries" (促進產業升級條例), when the statute is be nullified in 2009.

In response, Ho and business representatives, including Huang and Lin Kun-chung (林坤鐘), chairman of the Chinese National Federation of Industries (工總), disagreed, arguing that Taiwan needs to offer better tax treatment than other countries in the region to compete for foreign investment.

But academics oppose the idea of giving out too many tax breaks, which they feel may erode the nation's tax base.