Wed, Jun 06, 2012 page3

• Fairer taxation disrupts stock market: minister

  DILUTION: A KMT legislator said he regrets that the latest version of a securities tax will exempt more rich people from paying and eliminate the progressive taxation rates

  • By Shih Hsiu-chuan / Staff reporter
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  A government official yesterday said that the impact of an evolving plan to levy a capital gains tax on securities investments and how it would continue to affect the stock market carried more weight than the principle of fair taxation in policymaking decisions.

  “The extent to which a tax proposal better reflects the principle of fair taxation, the more fiercely it disturbs the market,” Minister of Finance Chang Sheng-ford (張盛和) told reporters after a meeting with Legislative Speaker Wang Jin-pyng (王金平).

  Chang made the remarks when asked to comment on the repeated changes in the government’s capital gains tax policy, which has been criticized for being too lenient on the wealthy.

  “Now we seek to create a tax system on income from share trading first and then pursue a better one in the future,” Chang said, adding that the government hopes Wang can help facilitate the passage of the proposal before the current legislative session is scheduled to go into recess on Friday next week.

  The government’s capital gains tax plan, which has gone through at least seven rounds of revisions by Chinese Nationalist Party (KMT) lawmakers since the Ministry of Finance proposed its original version on April 12, was revamped yet again on Monday.

  Two major changes were made on Monday: first, the exclusion of some wealthy people as defined from a tax method that would have demanded the inclusion of their capital gains on the sale of securities in the calculation of their annual incomes; second, the replacement of a progressive tax rate of between 5 and 40 percent on the aggregated income of the rich with a flat tax of 15 percent on the income of share trading.

  The wealthy were defined in the previous tax proposal as those who hold more than a 1 percent stake in listed companies and those whose annual income, excluding income earned from share transactions, exceeds NT$3 million (NT$100,000).

  Under the latest version, from next year to 2014, the capital gains tax system would only be activated when the TAIEX goes above 8,500 points, with individuals investing in the listed stock market be taxed at a rate between 0.2 and 0.6 percent depending on the level of the nation’s benchmark index.

  Meanwhile, individual investors would have to pay taxes at a rate of 15 percent based on their actual gains earned from transactions of unlisted stocks, from first transactions of initial public offering (IPO) stocks if they hold more than 10,000 shares of IPO stocks, and from transactions of unlisted stocks if they sell more than 50,000 shares annually, along with individual investors who reside less than 183 days in the country in the year.

  Starting in 2015, individual investors who sell listed shares valued annually at more than NT$1 billion would be subject to the levy, in addition to the individual investors who pay the tax based on actual gains during the first two years.

  Together with the Executive Yuan’s initial version, three other versions initiated by the Democratic Progressive Party (DPP), People First Party and DPP Legislator Hsu Tain-tsair (許添財), as well as the latest version negotiated by the KMT and Chang were sent out of the legislature’s Finance Committee on Monday.

  According to the legislature’s rules of proceedings, if the KMT, which holds a majority of seats, fails to win support from the opposition for its latest version, it could schedule a vote to get its proposal passed by the legislature after the one-month negotiation period ends on July 5.

  Drawing an analogy between US astronaut Neil Armstrong’s first steps on the moon in 1969 and the referral of the five versions to cross-party negotiations by the committee, Chang said that the move on Monday was “one giant leap” for tax reform.

  The civic group Alliance for Fair Tax Reform has long criticized the nation’s tax system for being unfair to the salaried class because about 70 percent of personal income taxes that the government collects come from this class.

  KMT Legislator Tseng Chu-wei (曾巨威), a former academic specializing in the tax system who used to speak out against unfair taxation before entering politics, threw his support behind the KMT legislative caucus’ latest version, although he was “depressed” about the design.

  “Anyone who pushes for tax reform has to accommodate pressure from market forces, politics and the wealthy. Somehow, I was depressed about the result, but I was also a bit pleased that we have made a first step,” he said.

  Tseng said he was especially dissatisfied with the exemptions of the defined rich people from the tax and the elimination of progressive rates — both “keys to achieving tax fairness.”

  “Now my only choice is to accept the negotiated version,” Tseng said.
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