By Shih Hsiu-chuan and Chris Wang / Staff reporters
Wed, May 30, 2012 - Page 3
The Chinese Nationalist Party (KMT) legislative caucus has rejected the Cabinet’s version of a proposal to tax capital gains on securities transactions, marking the latest move that may force President Ma Ying-jeou’s (馬英九) administration to consider overhauling its major taxation policy.
“We will review all versions to see whether they are in line with vital principles governing imposition of taxes and examine their feasibility,” Premier Sean Chen said yesterday when asked about the KMT caucus’ move.
Minister of Finance Christina Liu (劉憶如) has spent weeks communicating with KMT lawmakers about the Ministry of Finance’s proposal after the version it first drafted on April 12 was approved at a Cabinet meeting on April 26, and some major revisions were made.
However, the KMT caucus proposed a new version late on Monday, called a “dual-track mechanism,” following hours of discussions between KMT lawmakers, Liu and Financial Supervisory Commission Administrative Vice Chairperson Wu Tang-chieh (吳當傑).
Under the mechanism, individuals have a choice of: one, having their capital gains from stock investments taxed based on the TAIEX level, that is, if the weighted index is higher than 8,500 points, gains will be taxed at a rate of between 0.2 percent and 0.6 percent; or two, having their capital gains included in the calculation of their annual income, which is taxed at a rate of between 5 percent and 40 percent.
For the first formula, 0.1 percent of the stock’s selling price would be taxed at a rate of 20 percent when the TAIEX is between 8,500 and 9,400 points; 0.2 percent of the selling price would be taxed at a rate of 20 percent when the index level is between 9,500 and 10,499; and 0.3 percent when the index tops 10,500.
The KMT caucus’ proposal would allow individual investors to choose their favored tax payment method at the beginning of each year and investors cannot change their decision within that year.
For the second formula, individual investors would be eligible for a 50 percent cut on stock gains for stocks held for more than one year, and stock gains and losses can be offset over a three-year period.
The KMT caucus’ proposal would also require individual investors to pay taxes based on actual gains earned from first transactions of initial public offering (IPO) stocks if said investors hold more than 10,000 shares of IPO stocks, unlisted stocks and Emerging Market stocks.
Commenting on the KMT caucus’ proposal, the Democratic Progressive Party (DPP) said the ruling party’s proposal was like a “hastily assembled vehicle” and failed to uphold the spirit of fair taxation.
“The DPP cannot help but think that President Ma’s pledge to implement the tax is insincere,” given the continuing feud between administration officials and KMT lawmakers over differing proposals, DPP Legislator Pan Men-an (潘孟安) told a press conference yesterday.
The KMT caucus’ blatant objection to the Cabinet’s proposal was a de facto vote of no confidence against the Cabinet, he said.
The KMT lawmakers should reconsider their proposal, which proposes taxing investors by between 0.02 percent and 0.05 percent only if the TAIEX tops 8,500 points, Pan said.
“Why is the threshold 8,500 points? And how do you collect the tax under that system?” he asked, adding that it would be unfair that no tax be collected if the index stays below 8,500 points.
The recommendation not to tax foreign investors and the decision to slap small and medium-sized enterprises that do not trade stocks with a tax rate of between 12 and 15 percent under the alternative minimum tax rule are also unfair, he said.
“The KMT’s final version fails to honor the spirit of collecting taxes based on one’s ability to pay,” Pan said.
“Most analysts believe that it would be difficult for the TAIEX to break 8,500 points any time soon. In other words, the KMT’s proposal is meaningless because no tax would be collected,” DPP Legislator Lee Ying-yuan (李應元) said.
The DPP’s recommendation that a universal tax rate of 0.1 percent be imposed on all investors — both foreign and domestic — is more fair, while that of the KMT caucus “is too complicated and confusing with its dual-track system,” Lee said.
The Cabinet’s revised proposal released on April 26 would tax individual investors who earn a net NT$4 million (US$135,000) or more annually from stock investments at rates of between 15 percent and 20 percent.
For institutional investors, the proposed tax would follow the current alternative minimum tax system, under which firms are taxed on certain forms of tax-exempt income and gains arising from investments in securities and futures transactions, while the deductible amount is set at NT$500,000, while the tax rate would be set between 12 percent and 15 percent.