The legislature yesterday approved a proposal to reinstate a capital gains tax on securities investments, in a move the government hopes will end months of uncertainty, which had dealt a severe blow to the local bourse.
Under the “dual-track, two-stage” tax system, individual investors would pay a capital gains tax of between 0.02 and 0.06 percent on stock trade if the TAIEX hits 8,500 or higher next year and in 2014.
Individual investors in three categories will be subject to a higher 15 percent tax rate: people who sell more than 10,000 shares from initial public offerings (IPO) that are issued after Jan. 1 next year; those who sell more than 100,000 shares in emerging market; those who sell unlisted companies; and those residing in Taiwan for less than 183 days a year.
However, such investors would be entitled to a 50 percent tax cut if they hold on to their shares for more than a year, while the rate would be further cut in half for investors holding IPO shares for more than three years.
Starting in 2015, a fourth category of individual investors — those who sell shares worth NT$1 billion (US$33.3 million) in one year — will be subject to a 15 percent tax rate.
For domestic enterprises and institutional investors, the alternative minimum tax system will continue to apply, but with the tax rate being raised to between 12 percent and 15 percent — from between 10 percent and 12 percent at present — starting next year, while the tax-free threshold on income will be decreased from NT$2 million to NT$500,000.
The tax rate will be cut in half for institutional investors and domestic enterprises holding shares for more than three years to encourage long-term investment.
Minister of Finance Chang Sheng-ford (張盛和) said earlier that the tax would only affect 10,000 investors, but would generate between NT$6 billion and NT$11 billion in annual tax revenues.
Lawmakers from the Democratic Progressive Party (DPP) and Taiwan Solidarity Union (TSU) walked out of the chamber after a motion, also supported by the People First Party (PFP), that the amendments be referred back to the legislature’s Finance Committee for review was voted down by the Chinese Nationalist Party (KMT) 62 to 46.
As a result, most articles in the amendments to the Income Tax Act (所得稅法) and Income Basic Tax Act (所得基本稅額條例) cleared the floor without a vote, while a few proposed revisions to the amendments initiated by the PFP were voted down.
The opposition parties lambasted the capital gains tax as a “hollow shell” that was set up to earn President Ma Ying-jeou (馬英九) a “false reputation” of pushing through a tax reform and one that will in no way achieve its goal of promoting a fair and just tax system.
“Under the system, people who sell shares worth NT$1 billion have to pay the tax, but people who actually earn NT$10 million from share trading worth more than NT$900 million, but less than NT$1 billion don’t have to. Is this fair? Is this in line with the ability-to-pay principle in taxation?” DPP Legislator Lee Ying-yuan (李應元) asked.
TSU Legislator Hsu Chung-hsin (許忠信) said that the introduction of the method by which a capital gains tax on securities transactions is contingent on changes in the stock index level was without precedent in world history.
“I condemn lawmakers for approving the amendments. They have defied their professionalism,” he said.