The government should eliminate or halve the securities transaction levy to avoid double taxation if it decides to institute a capital gains tax on securities investments, the Chinese Securities Investors Association (全國證券投資人協會) said yesterday.
“Policymakers should be very cautious about the issue to avoid a repeat of the nightmare in 1988 when the TAIEX plunged for 19 consecutive sessions after the introduction of a capital gains tax,” the association of individual investors said.
The Ministry of Finance, then headed by Shirley Kuo (郭婉容), mother of incumbent minister Christina Liu (劉憶如), had no choice but to eventually abolish the unpopular levy to stabilize the market, the association said.
The local bourse, where individual investors account for more than 60 percent of turnover, has seen its market value slump by NT$1.2 trillion (US$40.7 billion) since March 28, when the ministry revived talk of taxing capital gains, the association said.
Existing taxation rules already subject all securities transactions to a 0.3 percent levy that generates more than NT$100 billion annually for state coffers, whether the deals are profitable or not, the association said.
The government should first scrap the transaction levy or cut it by 50 percent to avoid putting an extra burden on investors if the tax reform task force considers a capital gains tax necessary for social justice reasons, the association said.
Policymakers could also limit the planned capital gains tax to institutional actors and major corporate shareholders as most individual investors lose money on their stock investments, the association added.
The association also questioned the practicality of a capital gains tax given the volatility of share prices and the prevalence of dummy accounts.
Whatever conclusion they come to, policymakers should reach it promptly, because uncertainty poses the biggest downside risk for the equity market, the association said.