The Ministry of Finance has said that while the capital gains tax on securities transactions can be amended, it cannot be abolished. It would be better the other way around: It would be more appropriate to abolish, not amend, the tax.
First, there is just one reason given for why the tax cannot be abolished: tax justice. However, this is just a ruse. If tax justice were an inviolable principle, but foreign investors are exempt from it, what kind of justice is that? Furthermore, the tax on futures transactions, in which only large institutional investors can afford to invest, was cut in half last month, from 0.00004 percent to 0.00002 percent, and this month the Cabinet has passed a gaming act that gives a 20-year tax exemption on gambling income.
Giving such favors to the gaming industry, but implementing such a harsh tax system on the stock market, which is where the general public can participate, runs counter to what the government calls its “principle of justice.”
Second, levying a capital gains tax on securities transactions is outdated. In the past, it was indeed an effective tax, but times have changed. The flow of capital has been deregulated, stock markets in different countries are linked to each other and foreign investors are given preferential treatment in order to vitalize markets. These changes have brought us further away from ideas of justice and fairness.
Taiwan is very close to the stock markets in China, a country with which its shares a common language, and China, including Hong Kong, does not levy a capital gains tax on securities transactions. This does not mean that it would be impossible for Taiwan to implement such a tax, but doing so is a losing gambit both in terms of effect and in terms of international competitiveness.
Furthermore, the tax has in practice become a tax on the middle class and less well-off ordinary people. Seventy or 80 years ago, the tax was indeed a tax on the wealthy, but following globalization and liberalization, foreign investors have become the main investors in the stock market and the tax has thus become a tax directed at the middle class and the less well-off that are just entering the stock market.
As of March, there were 9.12 million stock market investment accounts in the nation. Although the stock market was anemic last year, trading still occurred in 3.67 million of those accounts. In particular over the past several years when real-estate prices have shot through the roof so that young people can only dream of owning their own house, the stock market has become the only place — apart from the lottery — where people can build their dreams.
The government’s plan to implement the capital gains tax on securities transactions and block people from realizing their dreams is a heavy blow to investors.
Over the past decade, China’s economic appeal may have attracted many Taiwanese businesses, but Taiwan’s stock market’s ability to maintain a higher earnings ratio than in neighboring countries has reaped benefits for major institutional investors. The credit for this should go to the insistence on exemption from the capital gains tax on securities transactions for foreign firms which has allowed Taiwan to maintain a reasonable level of economic growth.
Those academics, media outlets and officials that advocate their false brand of “justice” by opposing the abolition of the capital gains tax on securities transactions should stop being taken in by this outdated idea that only serves to destroy growth. They should give ordinary people and small retail investors a chance to build and realize their own dreams.
Huang Tien-lin is a former presidential adviser.
Translated by Perry Svensson