The Cabinet approved a revised draft of the securities capital gains tax bill on Thursday that will be sent for legislative review in the coming weeks. As the general public remains divided over the tax and cross-party lawmakers plan to present their own proposals, observers have said that the draft bill is unlikely to clear the legislature before lawmakers are scheduled to go into recess for a three-month summer holiday in June.
The tax issue has sparked controversy in recent weeks, with the volume of local stock market transactions shrinking and the TAIEX dropping 6.9 percent since March 28, when a Ministry of Finance task force first started discussing the tax proposal.
Some senior ministers do not share Minister of Finance Christina Liu’s (劉憶如) opinion on the levy and consumer confidence has declined this month for the first time this year amid mounting concerns over the tax issue and inflation fears.
Late on Wednesday — one day ahead of the Cabinet’s weekly meeting to finalize the government’s capital gains tax proposal — President Ma Ying-jeou (馬英九) held an emergency meeting with Vice President Vincent Siew (蕭萬長), Premier Sean Chen (陳冲) and several Cabinet ministers at the Presidential Office to throw his weight behind the controversial bill.
Ma’s support for the bill indicated that the government is determined to introduce the first capital gains levy on securities investments in more than two decades, as the problems of a widening wealth gap and increased government debt get worse. Put simply, the government wants many of the nation’s top income earners who derive a high portion of their income from securities transaction gains to pay more tax.
Regardless of whether Ma’s support has been enough to push the draft bill through the legislature, the business sector’s strong opposition and the division within the legislature suggest that the controversy is far from over.
It is likely that the legislature will take longer than expected to approve the proposal and more amendments are likely to be added to it after legislative deliberations are over.
With businesses’ concerns about the timing of the proposed levy unassuaged and their insistence that the government cut the securities transaction tax if a capital gains tax is imposed, it will be a miracle if it passes at all. Adding to the bill’s difficulties are the public’s questions about whether a securities capital gains tax will really help enlarge the nation’s tax base when the luxury tax imposed in June last year has so far only collected NT$1.9 billion (US$65 million) — the government previously claimed it could generate about NT$15 billion in annual revenue.
People who demand fairer taxation may be disappointed with the Cabinet’s revised tax bill, as the government has now taken a softer stance toward securities investors than was initially planned in the previous draft of the proposal.
One can argue that the Cabinet’s revised tax bill does not conform to the ability-to-pay principle which Ma has pledged to follow in his second term. People can also question if the revised bill signals the government’s compromise to those with vested interests who want to minimize the possibility of a future capital gains tax on housing and land investments.
The truth is that neither the Cabinet’s revised draft bill nor the different proposals from the securities industry, lawmakers or social groups have been perfect. Considering the complicated factors surrounding the issue — such as implementation costs, market impact and tax revenues — a less radical tax proposal is probably the best answer.
The priority right now is to have the capital gains tax system set up before fine tuning it to better achieve the government’s goals. Whatever the final result, the political debacle that will follow if the bill is not pushed through the legislature as quickly as possible does not bode well for Taiwan in the long run.
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