The Chinese Nationalist Party (KMT) and Democratic Progressive Party (DPP) are readying for a battle next week over the proposed capital gains tax on stock transactions that has rocked the stock market in recent weeks.
The KMT caucus is under pressure to vote in favor of the controversial tax, which President Ma Ying-jeou (馬英九) said was an integral part of his tax reform, before the end of the current legislative session next month.
Trading volume on the stock market has plummeted since the Ma administration announced its plan to impose the tax as investors wait for more details about the proposed new tax regulation.
However, the administrative branch and lawmakers from different parties have failed to reach agreement and as many as 10 versions of the proposal have been discussed in the legislature’s Finance Committee.
After long deliberation, the KMT unveiled the outline of its final proposal yesterday at a public hearing hosted by KMT Legislator Lo Ming-tsai (羅明才) in the legislature.
The KMT caucus proposed a “dual-track mechanism” that eliminates the Executive Yuan’s original proposal that individual investors who earn a net NT$4 million (US$136 million) or more annually from trading shares, initial public offerings and beneficiary certificates of private equity funds would be taxed.
Under the proposal, corporations would be taxed under the Alternative Minimum Tax rule and, at the beginning of the year, individual investors would be able to choose one of two options — to include stock gains as part of their annual income, or to have the income they make from trading shares taxed by between 0.02 percent and 0.05 percent, but only if the TAIEX was higher than 8,000 points, KMT Legislator Lai Shyh-bao (賴士葆) said.
However, the dual-track mechanism is only a temporary measure, Lai said, because the KMT still prefers a comprehensive solution in the long term.
The final version has gained support from Lo and other KMT legislators, including Tseng Chu-wei (曾巨威) and Alex Fai (費鴻泰), Lai said, adding that he hoped the version would accelerate the committee’s review of the issue.
DPP caucus whip Ker Chien-ming (柯建銘) introduced the party’s proposal at a press conference, saying “it would be the best and the most workable version,” of a capital gains tax on stock transactions.
“However, the DPP believes that the tax is not the most urgent issues at the moment, the fuel and electricity price increase is more important. At the same time, as a responsible party, we submit this draft confident that it will not cause panic among stock investors,” he said.
The DPP version, which Ker said is simpler than the KMT’s final version, focuses on the principles of fairness, increasing the tax base and streamlining tax filing procedures, Ker said.
The DPP, which also proposed eliminating the NT$4 -million threshold, said that all stock gains should be taxed on the basis of ability to pay, Ker said, adding that domestic and foreign investors who derive income from stock transactions should be taxed at a rate of 0.1 percent.
Those who make losses trading on the stock market, whose profits are less than 0.1 percent or those who overpay would be eligible for a tax rebate, he said.
In the DPP’s proposal, the tax base would increase because stock transaction tax rates would not be cut, nor would half of those taxed be able to claim deductions for the capital gains tax on stock transactions as in the Executive Yuan’s version, which would actually constitute a tax cut, he said.