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KMT capital gains tax plan draws mixed reviews

2012/05/29 18:58:31

Taipei, May 29 (CNA) A capital gains tax plan on securities proposed by Kuomintang (KMT) lawmakers has drawn predictably mixed reviews, with brokerage houses relieved and groups interested in tax fairness dissatisfied.

Investors clearly voiced their support for the plan -- which prompted Finance Minister Christina Liu to tender her resignation -- by pushing the benchmark index of Taiwan's stock market 2.9 percent higher Tuesday on volume of NT$93.6 billion (US$3.15 billion), the second highest daily turnover this month.

KMT legislators proposed a dual-track plan Monday that offers a choice to investors and is seen as more favorable to them than the plan drafted by the Ministry of Finance and later approved by the Cabinet.

The KMT plan will allow individual investors to choose between reporting stock gains as part of their income, or pay a stock transaction tax of between 0.02 percent and 0.06 percent that only kicks in when the benchmark TAIEX closes above 8,500 points.

The index has not closed that high since early August 2011 and finished at 7,342.29 Tuesday.

Taiwan Securities Association Chairman Hwang Min-juh, who has long opposed imposing a capital gains tax on individual investors, said the KMT's version is "not satisfactory, but acceptable," but he would not comment on Liu's offer to resign.

Wang Jung-chang, convener of the Alliance for Fair Tax Reform, criticized the plan, saying the KMT failed to explain why it set the TAIEX threshold for the transaction tax option at 8,500 points.

He also worried that stock market heavyweights would still find ways around the tax.

Stock market analysts saw the KMT plan as having benefits in the short term but limitations over the medium term.

Jenny Lai, head of research at HSBC Securities in Taiwan, said the KMT's version was less aggressive than the Cabinet's plan and could help boost the TAIEX in the short term to 7,500 to 7,700 points.

Jim Hung, head of research at BNP Paribas Securities in Taiwan, suggested, however, that the 8,500-point threshold set by the KMT could deter market performance in the future.

Analyst Lai Sian-jheng, agreed, predicting that the threshold will hold back the performance of value-weighted and high-priced stocks.

Lai also said that the KMT's proposal to tax both institutional and individual investors' capital gains on initial public offering trades would not have a big influence on investors' willingness to invest in newly listed stocks but could deter companies from pursuing listings in Taiwan.

Hsieh Hsueh-yun, a senior analyst at Shin Kong Investment Trust Co., said the 8,500-point threshold will put pressure on the overall market, but he stressed that in the long run, fundamentals will still be the most important factor guiding stock prices.

At present, only institutional investors in Taiwan are subject to a tax on their stock gains. Any profits they make above NT$2 million are taxed based on Taiwan's minimum tax system.

The administration of President Ma Ying-jeou had hoped to impose a capital gains tax on stock transactions as part of an effort to promote tax fairness in a system widely perceived as favoring the well-off and narrow the country's wealth gap.

Liu initiated the reform measure in March and her version, slightly amended by the Cabinet, would have required individual investors to pay a 15-20 percent tax on any stock gains above NT$4 million.

Meanwhile, Legislative Speaker Wang Jin-pyng said Tuesday that the KMT caucus' dual-track version will not necessarily be the final version presented. He said business groups had called him Monday, expressing negative views of the KMT's proposed version.

Opposition parties were also unhappy with the plan. People First Party caucus whip Lee Tung-hao described the version as "monstrous," saying the proposed dual-tax system is an absolute non-starter.

Democratic Progressive Party whip Ker Chien-ming said the newly proposed version lacked the original spirit of the tax, which is to be fair.

He said the KMT would be better off opting for the DPP's version, which is simpler and closer to the fairness principle touted by the Ma administration.

Taiwan Solidarity Union caucus whip Hsu Chung-hsin said his party is opposed to the KMT proposal and would definitely go against it if it entered cross-party negotiations.

(By Tien Yu-pin, Pan Chi-i, Ho Meng-kuei, Wu Chin-chun and Ann Chen)