The Chinese Nationalist Party (KMT) is again softening its attitude toward the much-maligned capital gains tax on securities investments, so KMT officials and lawmakers are looking for another excuse to explain their policy flip-flops over the tax.
This time, the concession came from the KMT caucus, which on Friday announced that the removal of the capital gains tax was the “direction” it would be taking, saying that the levy was already part of the securities transaction tax.
If the KMT caucus’ decision passes another round of cross-caucus negotiation today and wins support from opposition party legislators in coming days, it would represent the fifth adjustment to the tax in three years, while returning the capital gains tax policy to where it was in 2012.
For all the arguments that supporters and foes of the tax have made, the key issue is that the tax ensures the principles of social justice and fairness.
A well-designed tax scheme on securities investments should also promote healthy development in capital markets while discouraging speculation.
However, the local stock market is still reeling from the government’s decision to resume the capital gains tax three years ago: A widely expected annual tax revenue of NT$6 billion to NT$11 billion (US$182.33 million to US$334.27 million) from the capital gains tax has not materialized, while total capitalization of the local stock market has shrunk by NT$3 trillion in the past three years and revenue from the securities transaction tax was cut by NT$24.8 billion per year on average due to dwindling turnover.
Several Cabinet officials have voiced their support for abolishing the tax, saying it would alleviate tax burdens on stock investors and help revitalize a listless market. Stock investors have the right to expect something back from the market, but they have been rewarded with much lower returns than China and Hong Kong in recent years.
However, arguments by KMT officials and lawmakers are weak — the regulatory pendulum should not be allowed to swing back and forth when under pressure. Rather, the KMT aims to abolish this tax ahead of January’s presidential and legislative elections in a bid to win votes.
The fiasco over the capital gains tax resembles the situations faced by President Ma Ying-jeou’s (馬英九) administration in pushing for other reforms, ranging from the adjustment of fuel and electricity rates to the pension system overhaul to the fair distribution of wealth, in which the government’s hastiness in pushing through its policy objectives only resulted in serious objections from the public, with the final policies being watered down to a symbolic gesture of promises made by Ma when he came to power in 2008.
A wrong policy is far worse than corruption. However, who made the capital gains tax a bad policy and how has the issue degenerated into a brawl in the legislature?
The path to reform is endless, but along the way, greater space for discussion is necessary to reach a consensus, and a thorough consideration of potential impacts is the key to a successful execution of such reforms.
The pandemonium surrounding the capital gains tax is a case of irresponsible policymaking and careless leadership.
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