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EDITORIAL: So much for debating tax reform

The government’s Tax Reform Committee has, since its inception in June last year, stood by the idea of establishing a fair taxation environment. However, the responses of the government and investors last week to an academic study on the feasibility of reimposing a tax on capital gains from stock investments showed that fair taxation may not be realized.

On Tuesday, the Chinese-language Economic Daily News published a front-page story saying that the tax committee would propose that the government partially re-impose the capital gains tax on stock investments, known as the securities income tax. The report cited an academic study — the author of which was later identified as National Taiwan University associate professor of economics Lee Hsien-feng (李顯峰) — as saying the government should initially tax corporate stock investments to enlarge the nation’s tax base, while exempting individual investors from the levy to mitigate any negative impact on the stock market.

Although it was just one academic’s study about the “feasibility” of such tariffs and discussed various options if the government were to re-instate the tax, the TAIEX plunged more than 100 points in Tuesday’s opening session, prompting Premier Wu Den-yih (吳敦義) and Minister of Finance Lee Sush-der (李述德) to announce that the matter was still under consideration and the government would not implement the tax without consulting the public.

Tax experts have discussed this tax off and on since the government shelved the levy in 1990. With government debt rising, it could be a good time for a serious debate as the country looks for ways to promote a more equitable society. Unfortunately, the government’s immediate dismissal of the idea wiped out any chance of a reasonable public discussion.

The government first imposed the tax in 1973, when Li Kwoh-ting (李國鼎) was finance minister, with the goal of curbing short-term trading and excessive speculation. It abolished the tax in 1975 because of massive tax evasion.

In 1988, the government reinstated the levy to prevent the stock market from rising too quickly, but then-finance minister Shirley Kuo (郭婉容) again suspended it a year later after the TAIEX plunged more than 40 percent. In 2006, then-finance minister Lin Chuan (林全) successfully introduced a tax on capital gains from trading unlisted stocks — but that was just part of the government’s alternative minimum tax scheme, not an overall change to achieve fair taxation.

The market reaction to Lee’s report showed the extent of concern among investors. What the public has not been told, however, is that the levy is good for investors themselves. That is, investors pay tax on capital gains but can deduct investment losses from taxable income.

Nevertheless, the key issue is not the tax itself, but the government’s determination to implement tax reform. A thorough review of the nation’s tax system is long overdue. As the current system places the burden on the salaried middle classes, the tax base is shrinking, while the gap between rich and poor continues to widen.

Shying away from controversy will not help start a rational and fruitful discussion of how best to reform the nation’s tax system.
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