Taipei Times (TT): Is the latest development positive for the local bourse?
Lawrence Chang (張平沼): It depends on how the fate of the bill unfolds. The legislature’s move showed that lawmakers share the public’s unease about the tax plan, which has dampened stock transactions since the Ministry of Finance brought up the issue in March. In theory, the proposed tax would affect a minority of investors — with gains in excess of NT$4 million [US$136,000] a year — but the market appears inconvenienced, suggesting further explanation is necessary. The ministry can take advantage of the respite to consider how to win public support.
TT: As a three-term lawmaker in the 1980s and on friendly terms with the government, what would you recommend?
Chang: I had a vigorous debate with former finance minister Shirley Kuo (郭婉容), mother of Minister of Finance Christina Liu (劉憶如), 24 years ago when Kuo imposed a capital gains tax, but scrapped it shortly afterwards to calm public furor. The situation is not favorable for the tax plan today, either.
For one thing, the estimated NT$10 billion annual increase in tax revenue is negligible, compared with the price the government has to pay. Every tax involves costs. When costs are too high, the government should reconsider imposing the tax to avoid unnecessary waste of public resources.
Personally, I think the government will have difficulty collecting capital gains taxes should the Cabinet’s relaxed measures become part of the law.
The government should also take into consideration the timing of the tax. Domestically, the absence of major elections in the coming two years may be seen as a great window of opportunity for reform.
However, President Ma Ying-jeou (馬英九) must not rule the nation regardless of what happens around the world, given Taiwan’s heavy dependence on foreign trade. It is better for the government to postpone the tax plan until the global economy shows signs of stabilization. Measures that may dampen investment sentiment and overall economic growth should be avoided for the time being.
TT: Is it not right for Ma to take steps to address fairness and social justice, which topped voters’ list of concerns in the run-up to the presidential election in January?
Chang: No one opposes the advancement of fairness and social justice. It is both reasonable and fair for people with higher incomes to pay more tax. The capital gains tax is intended to further the cause by making the nation’s wealth more equitably distributed. The government can only achieve the intended effect if it is successful in making people who gain from securities investments pay more tax. If it fails to do so, I don’t see how the tax plan can benefit any group. Worse yet, if stock transactions remain sluggish, the state coffers will suffer and the government may lack sufficient funding to meet other policy goals.
If the government insists on taxing capital gains, it should consider scrapping or lowering the securities transaction tax rather than levy both. The securities transaction tax, adjusted to the current 0.3 percent [of trading volume], already contains a capital gains tax from when the government abolished the unpopular tax two decades ago.
The government looks unwilling to forfeit the transaction tax, which has proved a stable and significant source of income for the national treasury.