The legislative review of a proposed capital gains tax plan on stock investments finally kicked off recently after President Ma Ying-jeou came out and expressed his strong support.
It is worrisome, however, that some versions of the plan put forth by lawmakers have gone so unbearably off-course that Finance Minister Christina Liu could not but tender her resignation.
The Cabinet's version of the plan would tax individual investors only when their annual gains on stock investments exceed NT$4 million (US$133,300), which is expected to affect approximately 20,000 people. This version would achieve the purpose of taxing people based on their ability to pay while causing the fewest ripples in the stock market. As a result of the tax-free threshold, however, it would not be able to fully fulfill the principle of "taxing income that should be taxed."
A dual-track version proposed by ruling Kuomintang legislators would 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 stock index closes about 8,500 points.
This means that as long as the index remains below 8,500 points, investors would not be taxed a single cent on their gains even if they made NT$1 billion. But when the index exceeds 8,500 points, investors would be taxed even if they have suffered losses from their investments. This has totally betrayed the meaning and spirit of the capital gains tax.
The version presented by the opposition Democratic Progressive Party is better than the KMT's version and fairer than the Cabinet's version because it would tax all stock gains regardless of the amounts earned and of the nationalities of the investors. But due to its widespread impact, the DPP's version could face great resistance and eventually be discarded.
The KMT's version has again highlighted the party's inability to avoid being hijacked and resist pressure by special interest and business groups.
Brokerage firms and the business sector have opposed the proposed capital gains tax, linking it to the recent plunge in the daily turnover of Taiwan's stock market. In fact, the market slowdown is largely the result of a global economic and financial crisis triggered by the Greek debt problem and cannot be completely attributed to the capital gains tax plan.
We must emphasize that gains from stock investments are taxable in most countries around the world, and this has not hampered the normal development of their stock markets. The recent fall in turnover and prices are only a short-term reaction to policy change.
It is regrettable that the KMT has in the end yielded to the pressure of interest groups, at the expense of a responsible and enterprising political appointee. (Editorial abstract -- May 30, 2012)
(By Y.F. Low)