In line with market expectations, the legislature did not pass amendments to the Securities Transaction Tax Act (證券交易稅條例) and the Income Tax Act (所得稅法) on Friday, as cross-party negotiations failed to resolve differences over the much-maligned capital gains tax on securities investments, which means the amendments are now to be put on hold at the end of the legislative session for up to one month before lawmakers can come up with alternatives.
Regardless of whether lawmakers are shelving the amendments proposed by Chinese Nationalist Party (KMT) presidential candidate Hung Hsiu-chu (洪秀柱) out of their sense of responsibility or just political calculation, any amendments to current capital gains tax regulations would represent the fourth adjustment in three years and result in a tax policy that has been watered down substantially from its original form.
When the Ministry of Finance decided to resume the capital gains tax on securities investments — known as a securities income tax — more than three years ago, President Ma Ying-jeou (馬英九), who was re-elected for a second term earlier that same year, described the move as a significant step forward in ensuring the principles of social justice and fairness.
However, the ministry’s hastiness in pushing through its policy objectives only resulted in serious confrontation between then-minister of finance Christina Liu (劉憶如) and the KMT caucus, with Liu finally offering to resign in May 2012. A revised version of the capital gains tax — proposed by the KMT caucus and accepted by Liu’s successor, Minister of Finance Chang Sheng-ford (張盛和) — took effect in 2013.
The revised version was in place for less than six months before the legislature approved another revision on the tax measures in June to remove the 8,500-point threshold on the TAIEX, beyond which investors would have to pay a capital gains tax of between 0.02 percent and 0.06 percent on stock investments.
Nonetheless, as the saying goes: “Never two without three.” Late last year, the legislature pushed through yet another revision to put off the capital gains tax’s implementation on the so-called “active traders” for three years until 2018.
In retrospect, the Ministry of Finance has been retreating in its stance toward the tax issue in the past three years amid criticism from stock investors, business representatives, lawmakers and even other government agencies. As Chang recently said he would respect a legislative decision to amend regulations on stock transactions and capital gains taxes, including a potential elimination of all capital gains taxes, it seems the ministry is likely to lose ground again, as it lacks strong support from the Cabinet under mounting political pressure ahead of January’s presidential and legislative elections.
Last week, Chang said another capital gains tax revision would be suitable, adding that the planned changes would not only settle a long-standing controversy over the tax issue, but also benefit the nation in terms of economic growth and financial stability. This might be an excuse for Chang to downplay the ministry’s negligence of duties, as the KMT government is working on market-friendly policies to woo voters.
However, the government and the legislature need to do more. They need to tell the public why the series of revisions in the past three years orchestrated by the same officials and a few legislators is normal, and whether these people had thoroughly considered the implementation of the tax.
With its policy flip-flops on plans to impose a capital gains tax in the name of social justice and fairness, people deserve an apology from Ma’s government.
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