Securities houses slam revised capital gains tax plan

NO RELIEF::Futures companies also panned the plan, saying nothing has been done to ensure investors keep their money in Taiwan or to keep trading volumes high

By Crystal Hsu and Amy Su  /  Staff reporters

Fri, Apr 27, 2012 - Page 12

The nation’s securities and futures houses yesterday remained dissatisfied with the government’s revised plan to tax capital gains on securities and futures investments, and said they would seek recourse with lawmakers to prevent its enactment.

“We find the latest version disappointing, because it fails to ease concerns over potential fund outflows and shrinking trading volumes linked to the imposition of the capital gains tax,” Taiwan Securities Association (TSA, 證券公會) chairman Hwang Min-juh (黃敏助) said yesterday.

Turnover on the stock market remained low at NT$68.78 billion (US$2.33 billion) yesterday, with the TAIEX shedding 0.55 percent at the close, Taiwan Stock Exchange data showed.

Investors will not keep their funds in Taiwan simply because the Ministry of Finance raised the tax exemption amount to NT$4 million, from the previous NT$3 million, Hwang said, adding that securities investments in Singapore and Hong Kong are not subject to a capital gains tax.

The association insisted that the ministry lower or scrap the securities transaction levy if it taxes capital gains. It said the securities transaction tax, currently at 0.3 percent of the trading amount, is equivalent to levies ranging from 42 percent to 150 percent of capital gains for investments with varied returns.

The association urged lawmakers to reject the Cabinet’s tax proposal and maintain the “status quo,” or consult the association’s draft if the legislature intends to proceed with the tax reform.

The association’s draft calls for merging the capital gains tax into a 10 percent minimum income tax, which would apply to institutional stock investments in both listed and unlisted companies, with the exemption threshold at NT$2 million. The tax rate should be halved for share holdings of two years and longer, the draft said.

Individual investors, foreign or domestic, should be exempt from any capital gains tax until institutional players account for more than 50 percent of daily turnover, from the present 30 percent, the association said.

Likewise, futures companies said they would take their case to the legislature now that the Cabinet has sided with the Ministry of Finance.

“It is both confusing and unfair to subject institutional players to capital gains tax on futures investments, but exempt all individual participants from the planned levy,” Lu Ting-chieh (盧廷劼), secretary-general of the Chinese National Futures Association (期貨公會), said by telephone.

Futures investments, intended to hedge against losses in spot securities, transcend borders and investor identities, said Lu, who was chief secretary at the Financial Supervisory Commission in 2009-2010 when Premier Sean Chen (陳冲) served as the commission’s chairman.

The association stands by its earlier plea that the government either taxes futures transactions or capital gains, but not both, Lu said.

Several social groups also said yesterday they would not accept the Cabinet’s proposal of the securities gains tax, as this version breaks the “ability to pay” principle.

“The Cabinet’s proposal was a huge frustration for Minister of Finance Christina Liu (劉憶如),” said the convener of the Alliance for Fair Tax Reform (公平稅改聯盟), Wang Jung-chang (王榮璋).

The proposal indicated that either the Cabinet or President Ma Ying-jeou (馬英九) was not backing Liu, Wang added.

Wang said the version was too compromising to be agreed to by the salaried classes, who pay a consolidated income tax, and will deepen society’s hostility toward the rich.

If the government failed to tax securities gains, it will be difficult to convince people that upcoming tax reformation, such as capital gains tax on land investments, would be able to go further, Wang added.

“If the government always compromises to suit the rich, President Ma will fail to fulfill his campaign promises,” Wang said.

Meanwhile, civic groups also said the Taiwan Securities Association’s move to oppose the tax would block tax reformation and hurt the nation’s progress.

“If rich people earning money from the asset market do not need to be taxed, why should salarymen pay income tax?” Taiwan Labor Front (台灣勞工陣線) secretary-general Son Yu-lian (孫友聯) said.

In response to the securities representatives’ threat to initiate a public protest next month, civic groups said they would not rule out doing the same during the tax declaration period.

Convener of the Anti-Poverty Alliance (反貧困聯盟) Chien Hsi-chieh (簡錫堦) said he expects Liu to hang on in the upcoming wars in the Legislature.

“I think the current pressure raised by business heavyweights has isolated her,” Chien said.

However, Chien said he believes Liu’s stand would go down in history.

The Chinese National Federation of Industries (工商協進會), which had a meeting with Chen and Cabinet ministers on Wednesday, said it needed more time to form an opinion, adding that more business leaders in the industrial and commercial sectors would meet with Minister of Finance Christina Liu this afternoon to gain a better understanding of the issue.