The proposed capital gains tax on securities investments has highlighted increasing demands for justice and fairness from taxpayers at a time when the nation’s wealth gap is widening — but the final version of the tax could disappoint many if the government yields to opponents who argue the tax would hurt the country’s economy.
On April 12, the Ministry of Finance submitted a draft bill of a capital gains tax on securities and futures investments to the Cabinet for review, with the new tax scheduled to be levied in May 2014, based on investors’ gains from securities and futures in the previous year.
Based on the draft bill, the ministry plans to implement a separate tax rate of 20 percent on individual investors who earn a net NT$3 million (US$102,000) or more on stock, futures and options investments, as well as beneficiary certificates of private equity funds. For domestic institutional investors, they will face a 12 percent tax on net gains in excess of NT$500,000 a year, while foreign institutional investors will be exempted from the tax.
However, the draft bill has raised numerous concerns and questions from different interest groups, lawmakers and government agencies — addressing these worries has added to the ministry’s workload, because it wants to accomplish the task as soon as possible.
Some members of the ministry-based task force on taxation and finance who participated in previous discussions — such as Chien Hsi-chieh of the Anti-Poverty Alliance — said they refused to endorse the ministry’s version, because the draft bill did not really embody the spirit of the ability-to-pay principle, while National Taiwan University economics professor Kenneth Lin (林向愷), another member of the task force, last week announced he was withdrawing from it to show his displeasure at the ministry’s actions.
Meanwhile, as the TAIEX has continues to fall amid reduced market turnover over the past two weeks, other voices have joined the chorus of complaints.
The benchmark index has declined 5.37 percent, or 425.85 points, as of its closing level of 7,507.15 on Friday — its lowest level in more than two months — since the ministry initiated talks on the issue at the end of last month, Taiwan Stock Exchange (TWSE) data showed. Daily turnover fell to NT$58.67 billion on Monday last week, the second-lowest level of this year, from an average daily turnover of NT$142 billion in February, data showed.
On Wednesday, the Taiwan Securities Association (TSA, 證券公會) appealed to the government to rule out taxing individual investors, to keep Taiwanese capital markets competitive.
TSA chairman Hwang Min-juh (黃敏助) said the local securities market is usually more volatile than other stock markets due to its high price-to-earnings ratio, while individual investors account for about 65 percent of overall transactions in the local securities market.
“This kind of stock market is not appropriate for the introduction of a capital gains tax,” he told a press conference.
TSA said high tax-collection costs and an unstable tax source were two other major risks in levying the tax.
Jerry Huang (黃顯華), a board member of the association and chairman of Grand Fortune Securities Co Ltd (福邦證券), said implementing taxes that would drive the economy is more important than introducing a tax whose main purpose is equitable wealth distribution.
During a lunch meeting with other business heavyweights on Wednesday last week, Teco Group (東元集團) chairman Theodore Huang (黃茂雄) also said he did not support a capital gains tax on stock investments.
“It is not necessary to levy a capital gains tax on stock investments, because the securities transaction tax has created stable revenue for the nation’s coffers,” Huang said.
Some members of the legislature’s Finance Committee said last week they planned to challenge the ministry’s draft bill with their own tax proposals.
Chinese Nationalist Party (KMT) Legislators Lai Shyh-bao (賴士葆) and Sun Ta-chien (孫大千) said they were about to announce their own versions of the tax proposal, focusing on lower tax rates and a cut in the rate of securities transaction tax to complement the ministry’s proposal.
Democratic Progressive Party (DPP) lawmakers said their caucus would come up with its own -version soon.
The pressure from these various sources appears to have had some effect — on Thursday, the Cabinet decided in its preliminary review of the tax plan to expand the scope under which long-term shareholders would qualify for the preferential measure, while the Financial Supervisory Commission suggested the ministry cancel or cut the rate of the futures transaction tax to maintain the domestic futures market’s competitiveness.
Minister of Finance Christina Liu (劉憶如) might have made it a priority to satisfy the public’s expectation of fairness and social justice through tax reforms, but if the legislature plans to pass the tax proposal by the end of this year, the ministry might have to consider the balance between implementation costs, market impact and tax revenues, and it may have to compromise to achieve anything amid the political bargaining likely to take place in the legislature.
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