Local analysts derided a government decision handed down yesterday that would delay implementation of a tax on employee stock bonuses.
Premier Tang Fei yesterday announced that employee stock dividends -- shares typically given to employees as a bonus -- would continue to be taxed at their par value (NT$10) rather than their market value, which in many cases is 13 or 14 times higher.
With the announcement, the premier effectively delayed implementing a tax on stock dividends that local stock analysts insist would dilute the value of company stocks and help companies cook their accounting books.
One analyst who wished to remain anonymous said that most companies give stock dividends to employees and shareholders that dilute the value of market shares. He said the companies publish a new share price that shows the value of each share after issuing new stocks to shareholders, but the price does not reflect the new shares given to employees as bonuses. The market, he said, will take that into account and shave more points off the share price.
The analyst indicated that a revised tax code would clarify accounting regulations and make such stock dividends more transparent.
He further charged that companies have given out stock dividends whose market value far exceeded the total after-tax-income of the company, and gotten away with it by factoring in the stock dividend based on its par value (NT$10) rather than market value, which is usually much higher.
According to the analyst, in 1999 Realtek Semiconductor (
The company was able to do so by distributing eight million shares of stock to employees which had a par value -- the rate at which the government taxed each share -- of NT$10 each or NT$80 million total.
The market value of the shares, however, was much higher -- it closed today at NT$188 per share, giving Realtek's employee stock dividend an NT$1.5 billion value rather than its par value of only NT$80 million.
By playing with accounting codes, said the analyst, the firm was able to list the share value at its par value instead of its market value. Moreover, he said that while "Realtek is an extreme example, this kind of activity is common."
According to Securities and Futures Commission (SFC,
He pointed out that such bonuses are usually given to high-tech company employees as a way to share profits and supplement income. The government, in seeking to tax such benefits has been seen by some groups as striking a blow against the common worker. But local stock analysts don't see it that way.
"I guess most people think of an `employee stock dividend' as something that goes to the guy working the factory floor," said one analyst. "The reality is that the chairman or president of a company has the most to gain from stock dividends and the tax bonuses, not the people lower down in the company."
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