Tue, Dec 30, 2014 - Page 8 News List

EDITORIAL: DPP disappoints on tax reform

Less than a month after the Democratic Progressive Party (DPP) secured an unprecedented victory in the Nov. 29 elections, the party let down its supporters by compromising on the principle of fairness in taxation.

Last week in the legislature, DPP lawmakers agreed with their Chinese Nationalist Party (KMT) colleagues to postpone implementation of a proposed tax on capital gains derived from securities transactions by pushing through a KMT-sponsored amendment to Article 14-2 of the Income Tax Act (所得稅法), under which a new tax on individual investors who sell or buy more than NT$1 billion (US$31.5 million) of local shares per year — levying an additional tax of 0.1 percent on their stock trades that exceed NT$1 billion — was postponed for three years, from next year to 2018.

In response to criticism, the DPP said it would put forward its own tax proposal this week, in a bid to defend itself against the doubts raised against it that it supported the delay because it was opposed to taxes on income from the trading of securities.

DPP lawmakers also initiated legislation that would keep the full dividend imputation system — under which, after a company distributes dividends to individual resident shareholders, income tax paid at the corporate level can be fully offset against the individual’s tax liability — in place for another five years, in an attempt to overrule an amendment to Article 66-6 of the Income Tax Act that cleared the legislature in May, which would halve the deduction starting next year.

The 24 DPP lawmakers, or 60 percent of the total, who backed the proposal by Hsueh Ling (薛凌), the co-chair representing the party in the legislature’s Finance Committee, triggered mounting complaints, which resulted in a statement from DPP headquarters that Hsueh did not have the party’s endorsement when she proposed it and thus all views expressed in her proposal were Hsueh’s and not the party’s.

As a party that calls itself an advocate for fairness and social justice, the DPP owes the public an explanation as to why its lawmakers were so eager to stop the tax reform and seemingly protect the tax privileges of the rich, who already pay disproportionately low taxes.

Part of President Ma Ying-jeou’s (馬英九) administration’s 2012 tax reform proposal, Article 14-2 of the Income Tax Act is not much of a reform. According to the Ministry of Finance’s estimates, if the new tax takes effect next year, only about 1,000 people will be subject to the taxation, namely so-called “active traders” with a daily trading value of NT$3.85 million on average. Even then, should their annual transactions exceed the yearly threshold of NT$1 billion, for example by NT$1 million, they would only be required to pay NT$1,000 in tax for the portion.

With regard to Article 66-6, the Ma administration’s proposal to reduce the imputation tax credit ratio on dividends by half was already a compromise. The very generous full dividend imputation system, which Taiwan has operated since 1998, should have been abolished because of its deviation from international taxation practices, the loss of tax revenues it has caused and disregard of fair tax principles.

Another tax issue worth noting was the Ministry of Finance’s proposal seeking to overhaul the property taxation system by having tax on incomes from the transaction of property levied on combined actual earnings of the housing and land sold, as opposed to the current system, under which a land value increment tax applies to the land, while tax on the house is based on assessed value, which is typically less than half of its actual price. The proposal has faced a backlash from lawmakers, some of them from the DPP.

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