Industrial and financial leaders yesterday questioned the government’s plan to introduce a capital gains tax without providing supporting measures, saying the move could weaken the domestic capital market and prove futile in narrowing the income gap.
Minister of Finance Christina Liu (劉憶如) stood by the tax proposal, describing it as the government’s first attempt in more than two decades to straighten out the nation’s tax system, instead of inflating the state coffers.
“The local bourse plays an important role in raising funds for technology firms like Hon Hai Precision (鴻海精密), Compal Electronics (仁寶) and Quanta Computer (廣達). Measures that may slow the market are harmful to the economy,” Chinese National Federation of Industries (全國工業總會) chairman Rock Hsu (許勝雄) told a seminar in Taipei.
Hsu, who owns Kinpo Group (金仁寶集團) and Compal, pressed the government to handle the issue with care to avoid a mass layoff among securities houses if stock turnover keeps shrinking.
General Chamber of Commerce chairman Lawrence Chang (張平沼) expressed frustration at the Ministry of Finance’s refusal to cut the securities transaction tax in exchange for support for the planned levy.
The stock transaction levy, which investors pay when buying or selling a security, is already like a form of capital gains tax, Chang said, echoing the view of many securities brokerages.
Chang said the government likely shared this view, or it would not have proposed allowing taxpayers to deduct the stock transaction levy from their taxable income.
Chang said he doubted the new levy could generate any tax revenue given weak market sentiment and low cost of setting up dummy accounts.
“Taxes that cannot be collected are neither good nor fair,” said Chang, who worked as a lawmaker 24 years ago when Liu’s mother, then-finance minister Shirley Kuo (郭婉容), imposed a capital gains tax and scrapped it shortly after the TAIEX fell for 19 straight sessions.
The economic and political costs involved are too high, as evidenced by the TAIEX’s recent sluggish performance and widespread resistance from investors, Chang said.
Taiwan Cement Corp (台泥) chairman Leslie Koo (辜成允) voiced concerns about the timing for the proposed capital gains tax, saying it was better to postpone discussions until the local and global economy both gained a stronger footing.
“The proposed tax comes right after the government raised gasoline prices and its plan to soon raise electricity rates,” Koo said.
“I wonder why it must carry out all reforms within such a short period time,” he added.
SinoPac Financial Holdings Co (永豐金控) chairman Ho Show-chuan (何壽川) warned against measures that would further sap the financial sector as its weight in the nation’s GDP composition has already fallen from 9 percent in 2000 to 6 percent last year.
With the stock market’s performance inextricably linked to GDP growth, the government should avoid tax reforms that would hurt the economy, Ho said.
Liu said the ministry had factored in all concerns before deciding on its latest version of the tax proposal.
An economist-turned-politician, Liu said she would not scrap tests altogether simply because some students are cheating.
“It makes sense for people with more income to pay more tax,” she said.
While not perfect, the tax proposal represents a small, but important step to put the tax system on the right track, she added.