Several academics, led by former minister of finance Lin Chuan (林全), unveiled a draft securities capital gains tax yesterday. Their proposal calls for a 0.1 percent withholding tax on all securities transactions that can be deducted from a capital gains levy of 20 percent on individual investors and 17 percent on domestic and foreign institutional investors.
The proposal, which has the backing of civic groups, including the Anti-Poverty Alliance and the Alliance for Fair Tax Reform, does not propose a threshold for taxable income or the write-down of securities transactions taxes as expenses, Lin told a media briefing.
“Our version would require little extra cost in terms of tax collection, but could generate NT$30 billion [US$1.02 billion] a year in tax revenue, if it were adopted,” said Lin, who was finance minister between 2002 and 2006 under the Democratic Progressive Party (DPP) administration.
The proposed withholding tax would not pose additional difficulty for tax collection as all securities transactions are currently subject to a 0.3 percent transactions tax — automatically collected by brokerage houses on behalf of the government, Lin said.
If withholding tax payments proved larger than the capital gains levy, investors could file for a tax rebate, as they now do for income tax, but they would not have to pay more if the gains turned out to be higher than the withholding tax, according to the proposed draft.
Such a system would be better at preventing tax evasion and save taxpayers the trouble of making declarations in the case of large gains. It would also be more feasible than the Cabinet’s version, which fails to address technical issues, Lin said.
For individual investors, the draft proposes a capital gains tax of 20 percent for listed and emerging stocks and an alternative minimum income tax for earnings from unlisted stocks.
The draft provides a 50 percent break for gains from holdings of more than two years, and 60 percent and 80 percent exemptions for holdings in excess of four and five years, respectively. Investment losses could also be carried forward for the next three fiscal years.
“Our version is aimed at facilitating the introduction of a securities capital gains tax, which has created a stir just as it did 24 years ago,” Lin said. “However, the legislation must proceed for the sake of fairness and the nation’s financial soundness.”
For the same reasons, Lin and other academics rejected a threshold for taxable income and a write-down of the transactions levy as investment expenses, in keeping with the “ability to pay” principle.
The clause is harsher than the Cabinet’s bill, under which only investors with gains in excess of NT$4 million would have to pay capital gains tax.
The draft, jointly sponsored by National Taiwan University’s Public Administration Department and Law Institute, calls for a capital gains tax of 17 percent on institutional investors — domestic and offshore alike — whereas the Cabinet suggests sparing foreign players from the proposed levy.
All institutional investors would also be subject to the 0.1 percent withholding tax to close potential loopholes, Lin said.
Tax reductions range from 20 percent to 80 percent on holdings retained for more than two years and five years, while losses could be recognized over the next five years for local companies and three years for foreign players, the draft proposes.