The government is hell-bent on seeing the proposed capital gains tax on securities pass through the legislature. No matter what shape the tax finally takes, it is unlikely to bear much resemblance to what was originally intended. Having gone through numerous revisions, the initial purpose of the tax has all but evaporated, and yet it still promises to suppress the market.
With the world’s attention squarely focused on the EU debt crisis and countries battling to save their flagging economies, the government is trying to push through a capital gains tax that will see only limited tax revenue and now serves primarily as a face-saving exercise for President Ma Ying-jeou (馬英九).
Taiwan’s economy has taken a turn for the worse in the first half of this year, almost certainly because of the global economic situation. World markets, even China, which weathered the financial crisis so well a few years back, have been almost universally affected by the EU debt crisis and the parlous state of the global economy. Even so, things have been made worse by the government’s poor handling of the economy, first with the fuel and electricity price hikes, and now by forcing through the capital gains tax. The result has been soaring consumer prices, stagnating growth and a stock market slump. Between March and this month, the TAIEX hemorrhaged NT$3 trillion (US$99.6 billion).
The government would have us believe that this tax will make the system more equitable, arguing that if someone makes money on a transaction, it is right that they pay a percentage of that gain in tax. This did not help former minister of finance Christina Liu (劉憶如) to sell the policy, meaning Ma had to step in. OK, so this ran counter to the spirit of the legislature. OK, the current revision is barely recognizable from the original proposal. OK, Ma lost his minister of finance in the process. OK, the finance world, tax reform groups and the opposition have all lambasted the KMT’s proposals, arguing that the tax would not achieve its policy objectives and that the discussion should be shelved until the economy improves. Yet, the government still wants to see it pass. However, with all its revised conditions and limits, it is unlikely to generate much revenue and it will certainly not promote social equality. Not that Ma cares about the financial sense of levying the tax — he is concerned only with the political significance of its passage.
Ma won the presidential election with over 50 percent of the vote. After a litany of major gaffes, his popularity rating now lumbers along at below 20 percent. If he were to fail to pass this tax, his political reputation would be in tatters. He does not want to be hobbled so early on in his second term, and if he wants to keep any semblance of political integrity, he has little choice but to soldier on, regardless of outside resistance.
He was also obliged to bring forward the announcement of his intention to seek re-election as Chinese Nationalist Party (KMT) chairman. To cover up for its ineptitude, the Ma administration has been saying that it is impossible to satisfy everybody all of the time.
Last year, the government championed the idea of levying a luxury tax, intending to use it to suppress rising property prices, increase tax revenue and promote social fairness. Property prices have continued to rise, but property market transactions have slowed. The government originally forecast revenues from the luxury tax of over NT$15 billion, but has so far only generated NT$3 billion, and society does not seem to be appreciably fairer. Also, as local government tax revenues have fallen, the division of tax revenue between central and local governments is actually less fair.