The Financial Supervisory Commission (FSC) yesterday expressed opposition to a proposed 10 percent levy on capital gains from investment-linked life insurance policies.
“No tax should be levied on such policies, which have greatly contributed to an important social safety net, while policyholders have been paying their taxes to contribute to the nation’s coffers,” Yeh Yin-hua (葉銀華), one of the FSC’s policymaking panelists, told a media briefing.
Yeh said the Cabinet’s tax reform committee might have misunderstood the nature of the policies and the existing regulations for them.
Policyholders for investment-linked insurance products, as well as their beneficiaries, have already paid the income, gift or inheritance taxes that are due and a new tax levy would amount to double taxation, Yeh said.
Such a levy would go against international norms, he said.
The tax reform committee is to finalize a decision on the proposed 10 percent levy today. Yeh said he and officials from the FSC’s insurance bureau would also attend the meeting to voice their disagreement.
To ease the tax reform committee’s concerns that wealthy people have been buying such policies to maximize tax-free capital gains from the attached investment accounts, Yeh said the FSC plans to raise the minimum ratio of death benefits to account value from between 101 percent and 130 percent to between 105 percent and 150 percent or 170 percent.
By raising the minimum ratio, policyholders will have to pay a higher premium to cover their death benefits and, in relative terms, lower the investment portion, he said.
Separately, the nation’s six major business organizations yesterday called on the government to consider delaying a proposed tax increase plan in 2011, citing bad economic conditions.
Roscher Lin (林秉彬), chairman of the National Association of Small and Medium Enterprises (中小企業協會), who convened a meeting of the six groups, said it would be better for the government to raise business taxes from 5 percent to 6 percent, once the nation’s economy can grow at least 5 percent.
Taiwan’s economy contracted by a record 10.24 percent in the first quarter as the global recession eroded demand for the country’s exports. The government’s statistics bureau has forecast the economy will decline 4.25 percent this year.
The government is considering a proposal to raise business taxes as a way to solve the capital shortage for the nation’s labor insurance annuity program. The 1 percentage point increase in business tax is likely to rake in an additional NT$48 billion (US$1.46 billion) for state coffers each year.
But the business groups said the tax hike could cause consumer prices to rise and place further stress on consumer purchases, adversely impacting the economy.