A proposed capital gains tax causes much concern

Premier Sean Chen (陳冲) said yesterday that more discussion is needed before the Cabinet can decide whether to lower the current stock transaction tax of 0.3 percent as suggested by the Financial Supervisory Commission (FSC).

Asked if the FSC was insisting on a lower stock transaction tax, Chen said Taiwan was a democratic country and the Cabinet would evaluate different opinions before making a final decision.

FSC Chairman Chen Yuh-chang (陳裕璋) had said the transaction tax should be lowered if a capital gains tax is introduced as proposed by the Ministry of Finance.

Currently, the transaction tax on stock turnover is 0.3 percent, reduced from 0.6 percent in the 1990s.

However, Chen said yesterday that “we cannot deny that the current 0.3 percent tax rate involves the concept of a capital gains tax.”

Minister of Finance Christina Liu (劉憶如) has voiced opposition to lowering the transaction tax, saying it is a different matter from the proposed capital gains tax.

Liu said on Monday that Taiwanese companies would not lose global competitiveness if a 1 percent capital gains tax was levied on investors.

She said this in response to FSC Vice Chairman Wu Tang-chieh’s (吳當傑) comment on Monday that a capital gains tax would increase investment costs and negatively affect market mobility, as well as the nation’s global competitiveness.

Responding to public concerns that the capital gains tax proposal was driving down the local bourse, Chen said the market was being affected by many uncertainties, including the global economic situation.

The average daily turnover on the local bourse fell 22.6 percent to NT$77.9 billion in the April 12 to April 18 period, compared with an average NT$100.7 billion in the last month before the capital gains tax was proposed.

According to the Taiwan Securities Association (證券公會), the imposition of a capital gains tax will also lead to an exodus of day traders and short-term speculators, who contribute 15 to 20 percent of the daily turnover of Taiwan’s stock market.

The association warned on Monday that its members might have to cut their staff because of shrinking business and asked the government to reconsider the capital gains tax proposal.

Meanwhile, the premier said he would encourage local businesses to raise salaries.

However, he said the restructuring of local industries would also be fundamental to long-term economic growth.