Thu, Jul 08, 2004 - Page 10 News List

MOF to seek legislature's help on brokerage taxes

THREAT TO REVENUE Chinese Securities Association members are threatening to suspend issuing share warrants unless the tax rate on such warrents is cut

By Joyce Huang  /  STAFF REPORTER , WITH BLOOMBERG

The Ministry of Finance yesterday promised to seek legislative approval to iron out taxation dis-agreements with the Chinese Securities Association (券商公會), which has threatened to suspend the issuing of share warrants -- including both call warrants (認購權證) and put warrants (認售權證).

Major brokerages in the group on Tuesday said they would stop issuing share warrants to protest what they feel is an excessive tax rate.

The move is expected to cut government tax revenue by at least NT$3.4 billion a year.

The association's board decided to halt issuing share warrants immediately because of the 25 percent tax levied -- a rate which exceeds the typical 15 percent to 20 percent profit margin brokerages earn from these issues, according to the association.

That halt may reduce stock market turnover by NT$470 billion a year, the association said.

The ministry issued a written statement in response yesterday, saying that Minister of Finance Lin Chuan (林全) had met with association chairman Chien Hung-wen (簡鴻文) early yesterday in an effort to reach an understanding on the controversy.

Chien had previously urged the government to revise the Income Tax Law (所得稅法), claiming capital gains from financial derivatives are being unfairly taxed.

But he has yet to persuade the government of the merit of his complaint.

Nelson Yu (游能淵), deputy director-general of the ministry's taxation department, told a press conference yesterday that "unless the law is revised, the taxes cannot be cancelled."

Yu noted that the legislature has twice vetoed revisions to the law because the private sector insisted on a retroactive clause.

Yu called on the association to call off its boycott and wait for a legislative review so that it would not create what he called a "lose-lose" situation between the private sector and the government.

Brokerages posted combined pretax profit of NT$4.7 billion from issuing share warrants from 1997 -- when they first began issuing the warrants -- until 2002, according to the latest available figures from the association.

Brokerages had to pay a total of NT$9.7 billion in taxes during that time, the association said.

Brokerages have refused to pay the tax and have filed an administrative lawsuit against the government, saying the tax should be levied only after their hedging costs are deducted.

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