Sun, May 12, 2013 - Page 8 News List

EDITORIAL: Rethinking the capital gains tax

By now, we are well aware that if people continue to put pressure on the government on certain issues, it will eventually respond to their demands. This is the beauty of democracy: Less-desired policies should be replaced by better policies to protect the rights and interests of the majority of citizens.

The issue of taxing capital gains on securities transactions — known as a securities income tax — provides an example. There is something odd about this government in that it is unclear whether its change of heart regarding the tax had been the result of a sense of responsibility or just political calculation, as it has continued to receive low approval ratings in recent polls.

One year ago, the government decided to resume this tax in the name of social justice and fairness, but its hasty move not only led to the resignation of the finance minister at the time, but also resulted in a tax policy that was watered down from its original proposal. Most importantly, it proves the government had not thoroughly considered whether the tax would help it achieve its broader objectives in terms of economic growth and financial stability.

Last week, the Ministry of Finance finally said it would present a revised capital gains tax plan within a month, a dramatic change from as recently as late last month, when it said that it would only consider reviewing the tax at the end of the year at the earliest.

Clearly, the ministry has softened its stance toward the tax amid increasing criticism from the public, business representatives and lawmakers once it became clear that the tax was weighing heavily on the trading volume of the local bourse by scaring off both retail and institutional investors.

Based on the ministry’s latest tax income data, released on Friday, revenue from the securities transaction tax in the first four months of the year declined 24.4 percent year-on-year to NT$20.9 billion (US$703 million), its lowest level since 2005, because the average daily turnover of the local bourse was 30 percent lower than the government expected.

The Control Yuan last month reprimanded the finance ministry for implementing the tax that dragged down trading on the local bourse and led to a huge decline in securities transaction tax revenue, but the final straw came on Wednesday, when President Ma Ying-jeou (馬英九) said in an interview with a local radio station that the government could conduct an early review of the tax, rather than waiting until a year after its implementation.

Several lawmakers last week said they planned to propose that the ministry remove the 8,500-point threshold on the TAIEX beyond which investors will have to pay a capital gains tax of between 0.02 percent and 0.06 percent on stock transactions. Ironically, it is these lawmakers who proposed the 8,500-point threshold last year. As long as the memory of the legislature passing the amendments in July last year remains fresh, one has to wonder how professional our lawmakers are.

Nevertheless, if a tax policy has impeded productivity in a certain sector and harmed the government’s tax revenue, changes in tax rules are necessary and there is no need to waste any more time arguing about the principle of equity and fairness.

Properly revised and executed in a gradual move, this capital gains tax could serve as a good start to rebuilding a fairer tax system in Taiwan. Improperly executed, it will only create a situation in which no one wins.

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