The Executive Yuan late last night devised a new version of a capital gains tax plan after Premier Sean Chen (陳冲) called a meeting in which Chinese Nationalist Party (KMT) lawmakers and Cabinet officials revised the KMT caucus’ proposal, which has come under severe criticism as being unfair.
Under the Cabinet’s previous version, individual investors who earn a net NT$4 million (US$134,093) or more annually from trading shares, initial public offerings and beneficiary certificates of private equity funds would be taxed at a rate of between 15 percent and 20 percent.
Meanwhile, the KMT caucus’ version drafted on Monday proposed a “dual-track mechanism,” under which individual investors have a choice of: one, having their capital gains from stock investments taxed based on the TAIEX level, that is, if the weighted index is higher than 8,500 points, gains will be taxed at a rate of between 0.02 percent and 0.06 percent; or two, having their capital gains included in the calculation of their annual income, at a rate of between 5 percent and 40 percent.
Photo: CNA
It allowed individual investors to choose their favored tax payment method at the beginning of each year and investors cannot change their decision within that year.
Civic groups have criticized the KMT proposal, saying it would not promote a fairer taxation system. They said that over the past 10 years, there were only 18 months in which the benchmark index stood above 8,500 points.
The TAIEX closed at 7,301.5 yesterday.
Three major revisions were made at last night’s meeting to the KMT caucus’ version.
First, the tax payment method based on the index level would be eradicated in 2017.
Second, rich people would not be allowed to use the index-based tax payment method.
Rich people are defined as shareholders who own more than 3 percent of the shares of a company, people whose annual income excluding income earned from shares transactions exceeds NT$5 million, and people who live in the country less than 183 days a year.
And third, starting in 2017, only four categories of individual investors need to pay a securities capital gains tax: people who hold more than 1 percent of the shares of a company, people whose annual income excluding income derived from securities transactions exceeds NT$3 million, people who sell shares annually valued at more than NT$1 billion, and people who live in the country less than 183 days a year.
The latest proposal will formally become the government’s version, replacing the Cabinet’s previous proposal if it is approved at the KMT caucus meeting today.
Earlier yesterday, the Executive Yuan named a former veteran tax official, Chang Sheng-ford (張盛和), the new finance minister to fill the position left by Christina Liu (劉憶如), whose offer to resign on Tuesday had been accepted by Chen and President Ma Ying-jeou (馬英九). Liu resigned following disagreements over the KMT caucus’ version of the proposed tax and harsh criticism of the Cabinet’s version from some KMT lawmakers.
Chen’s nomination of Chang, who retired as deputy minister of finance in February after serving at the ministry for more than 30 years, was approved by Ma last night.
Chen said he nominated Chang because of his breadth of practical experience in tax administration and knowledge of tax principles.
Chang’s appointment drew mixed reactions from lawmakers.
KMT caucus whip Lin Hung-chih (林鴻池) said the caucus respected the decision and expected Chang to communicate with lawmakers fully.
People First Party caucus whip Thomas Lee (李桐豪) said he expected “nothing much” from Chang because of his background as a technocrat.
DPP caucus whip Ker Chien-ming (柯建銘) voiced doubts about Chang’s ability to deal with the issue and other tax reform issues down the road, citing concern about his background as a bureaucrat. Ker added that Chang might lack the vision and courage to push reforms.
Taiwan Solidarity Union Legislator Hsu Chung-hsin (許忠信) said he had no opinion about the appointment of Chang, but added that the government should fully review the capital gains tax plan.
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