Thu, Nov 26, 2015 - Page 8 News List

Levying capital gains tax difficult

By Schive Chi 薛琦

With the exception of property tax, perhaps the most controversial tax in Taiwan is the capital gains tax. It distinguishes itself in the way it has been a story of stops and starts, it has never been properly implemented and nothing has ever come of all the effort put into it. All the stops and starts have been damaging for the government and the public’s faith in it.

There are three types of securities taxes.

First, there is the tax on the gains made from buying and selling securities, generally known as the capital gains tax. This includes the tax on gains made from the first time shares are sold on the market, referred to as the initial public offering (IPO) tax.

Second, there is the tax on cash or stock dividends generated by share holdings within a portfolio, which is included as part of the overall income tax.

Third, there is securities transactions tax, also known as stamp duty.

There have been at least three attempts to levy a capital gains tax in Taiwan since a centralized trading market was established.

The first attempt was, according to former head of the Industrial Development Bureau Wang Ya-kang (汪雅康), scrapped at the time because of a slew of technical problems and was replaced in amended form, incorporated as part of a securities transactions tax. This was a practical arrangement that made a significant contribution to the stock market and tax revenue.

Then, in September 1988, the Ministry of Finance announced that it was planning to levy a capital gains tax the following year.

The market reacted to this news by closing limit down for the next 19 days, even though the government halved the securities transactions tax after the new tax was implemented in an attempt to soften the blow.

The result of this attempt was a return to square one, scrapping the tax on income from stock in non-listed companies in the process.

The third attempt at a capital gains tax was the reintroduction of the tax through legislation passed in April 2012.

The tax included a rather unique clause that placed a lid on levying the tax if the TAIEX fell below a 8,500-point threshold, which gave a strong impression that this tax was not yet ready for implementation.

Sure enough, in June 2013, the law was revised to include the similarly curious “big investors clause,” according to which, a 0.1 percent tax would be levied on the portion of investments of big investors that exceeded NT$1 billion (US$30.63 million) in a year. Legislators appear to have a blind spot when it comes to this tax.

Consider some of the problems.

First, with the exception of the UK, all of the major nations in the world that levy a capital gains tax have, at different times, did not levy a securities transactions tax.

Second, all of the nations that levy a capital gains tax have measures in place to offset losses.

In Japan, investors can carry capital gains forward for up to three years and use them to offset losses for the next three years. The tax rate is levied as separate taxation, that is, at a rate of 15 percent, with an additional 5 percent residence tax. However, Japan does not levy a securities transactions tax.

The US does not levy a securities transactions tax, either, but it does levy a capital gains tax of between zero and 39.6 percent, depending on the length of time the securities were held and the tax bracket the individual is in.

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