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Ministry of Finance gets ready to tax stock options

The government plans to levy income tax on stock options granted to workers by companies, and the new policy may take effect on Aug. 1, according to the Ministry of Finance.

"It has been a fait accompli that taxes will be imposed on all capital gains, including employee stock options," Minister of Finance Lin Chuan (林全) told reporters yesterday.

The ministry has been criticized for waiting until April 30 to announce the measures to tax stock options, but Lin defended the policy.

"Actually, it took more time than expected to negotiate with the high-tech sector as to how the taxes will be imposed, which is why the taxation administration waited until the last moment to make public its taxation measures," Lin said.

The government decided two years ago it would levy income tax on stock options beginning last month. The government plans to tax as personal income the difference between a stock option's exercise price and the underlying share price on the date of exercise.

But Lin said there's still technical controversy over how the taxes will be levied.

Before the tax season began on May 1, the nation's high-tech sector and employees complained that they were not informed earlier about the tax change.

Some high-tech corporate leaders such as United Microelectronics Corp (UMC, 聯電) chairman John Hsuan (宣明智) lambasted the government's decision to tax options, saying that such taxation harms the sector's development.

Late yesterday, Vice Minister of Finance Gordon Chen (陳樹) held a press conference to clarify the government's position.

Chen said the ministry has been supportive of the private sector by granting tax breaks, even though such breaks may seriously erode the nation's tax base.

But he said the government has granted too many tax breaks, which contributed to Taiwan's annual tax revenues accounting for only 13 percent of GDP -- a drop from 18.2 percent in 1993 and far lower than levels in advanced countries such as the US, Japan, South Korea and Singapore.

After public hearings were held to discuss the controversy, Chen said the government had reached a consensus with the private sector to confirm the plan to tax stock options.

A consensus was also reached that taxes will be levied in accordance with the capital gains made from the time employees received the shares and when they were given the share offer, Chen said.

It usually takes two weeks for employees to receive the shares and a grace period of two years is also given before such taxes are levied since employees are bound to a two-year lock-up period before they can sell their shares, Chen said.

The vice minister said his ministry has come up with a fair mechanism in line with international standards..
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