The Executive Yuan yesterday finalized its version of a capital gains tax on securities transactions after making several major revisions to the initial proposal submitted by the Ministry of Finance two weeks ago.
“We hope the finalization will help stabilize the market and soothe investors’ fears,” Minister Without Portfolio Kuan Chung-ming (管中閔) told a press conference held to unveil the draft, seen by some analysts as a trigger for a recent plunge on the stock market.
Under the proposal, individual investors who earn a net NT$4 million (US$136,054) or more annually from trading shares, initial public offerings and beneficiary certificates of private equity funds would be taxed at rates of between 15 percent and 20 percent, with the rate decided by the Executive Yuan based on the economic conditions.
Minister of Finance Christina Liu (劉憶如) said the tax would affect only 1 percent of individual investors, fewer than 20,000 people, dismissing what she called a “biased” claim by business leaders that 160,000 individuals would be subject to the new tax.
Compared with the ministry’s initial proposal, the new proposal raises the threshold for taxable income from NT$3 million, lowers the tax rate from 20 percent and exempts futures and options transactions from the new tax.
Transaction tax paid can also be deducted from securities income, as opposed to the ministry’s proposal that the 0.3 percent tax be listed as a deductible expense from income.
The amount to be taxed can be offset by an investor’s losses, while the losses which are not offset during the declared year can be used to offset earnings in the following three years, as the ministry initially suggested.
The new proposal states that individual investors who hold stock investments in excess of three years would see their tax burden cut in half, rather than the five years the ministry proposed.
For domestic enterprises and institutional investors, the Cabinet approved the ministry’s initial proposal to keep the current alternative minimum tax system, under which firms are taxed on certain forms of tax-exempt income and gains arising from investments in securities and futures transactions.
The approved proposal lowers the tax-free threshold on the income from NT$2 million to NT$500,000 and raises the tax rate to 12 percent, from 10 percent, while the statutory tax rate is increased to between 12 percent and 15 percent, from between 10 percent and 12 percent.
Institutional investors and domestic enterprises have been granted the same tax incentives as individual investors to encourage long-term investment.
Foreign institutional investors, defined as an institutional investor from or registered in a country outside of Taiwan without a fixed place of business or business agent in Taiwan, would be exempt from the capital gains tax.
Liu expects the new taxes to generate about NT$10 billion in revenue annually.
In response to media inquiries into the reasons for the changes to the ministry’s proposal, Liu said the government took some advice from the Financial Supervisory Commission when the policy was reviewed by Kuan at a Cabinet meeting.
The commission was of the opinion that if a capital gains tax was to be imposed, it should have a minimal impact on the stock market, and that was the reason the threshold was increased to NT$4 million, Liu said.