The controversy over a plan to levy a capital gains tax on securities investments continued yesterday, with the opposition describing the latest government proposal as “pseudo-reform” causing a stock market “disturbance.”
“[We wish to] have a capital gains tax on securities in place, then [we can pursue] a better one [in the future],” Premier Sean Chen (陳冲) said when asked about the wide criticism the proposal has drawn.
The latest proposal represents a combination of the Cabinet’s previous version, under which individual investors would be taxed based on actual gains, and a Chinese Nationalist Party (KMT) caucus version, under which the tax would be activated only when the TAIEX goes above 8,500 points.
A new version was negotiated late on Thursday night and the government was hoping to receive the endorsement of KMT lawmakers at a party caucus meeting yesterday, ending months of tension between the Cabinet and lawmakers over the tax reform policy that President Ma Ying-jeou (馬英九) has pledged to move forward with.
However, some KMT lawmakers remained opposed to the proposal.
Following the caucus meeting, KMT legislative caucus whip Lin Hung-chih (林鴻池), who was involved in negotiating the latest version, said: “Further discussion among caucus members is needed before a consensus can be achieved.”
The new version proposes a “dual-track mechanism” for individual investors from next year through 2016, under which individual investors, except for “the rich” as defined by the proposal, can choose to either have their tax calculated based on the index level or have their capital gains included in the calculation of their annual income.
During the application of the dual-track mechanism, wealthier people and those living in the country for fewer than 183 days a year are not allowed to use the index-based method.
Starting in 2017, the dual-track mechanism would be eradicated and ordinary individual investors would be exempt from tax on income derived from the trading of securities, but the tax would still be imposed on “market makers,” the rich and people living in the country for fewer than 183 days a year.
The proposal defines “market makers” as people who sell more than NT$1 billion (US$33.4 million) of securities in the year and “the rich” as shareholders of listed companies who own more than a 1 percent stake or people whose annual net income, other than income earned from securities trading, exceeds NT$3 million.
An individual investor is required to pay taxes based on actual gains earned from initial public offerings (IPOs) if the investor holds more than 10,000 shares of IPO shares, unlisted shares and shares listed on the emerging market.
KMT Legislator Lo Shu-lei (羅淑蕾) opposed the latest version for two reasons.
The tax payment method under the dual-track mechanism tied to the index level would discourage investors from trading in higher-priced shares, which have greater weighting in the index, to keep the index from reaching the threshold, Lo said.
Lo said it was unfair on certain investors because “transactions of IPO shares, unlisted shares and shares listed on the emerging market are [automatically] subject to taxation, but trading of shares in listed firms would not be [if the TAIEX is below 8,500 points].”
KMT legislators Alex Tsai (蔡正元) and Lai Shyh-bao (賴士葆) both praised the proposal that they helped draft.