Finance chief allays fear of old tax as stock market falls

TAIPEI, Taiwan, The China Post Staff

Taiwan share prices tumbled and the New Taiwan Dollar weakened yesterday on reports of China’s new military exercises in the Taiwan Strait and the Ministry of Finance’s plan to resurrect the securities trading income tax. The weighted index, the market’s key barometer, slid 163 points to at 5,325 on the Taiwan Stock Exchange with moderate turnover of NT$62.95 billion (US$1.88 billion).

The massive outbound remittance of investment capital by foreign investors also pulled down the New Taiwan Dollar rate. Vice Finance Minister Chen Shu said at a symposium in the morning that reviving the capital gains tax on the stock market has long been a major policy of the MOF in the overall financial reform program. He said the resumption of the tax can be implemented anytime as long as accompanying regulations are drafted and all sectors in the society reach a consensus on the issue. It would not be a necessarily bad move to resume the tax if the new rules allow stock investors to deduct their investment losses when filing consolidated income tax, he said.

The vast majority of retail investors actually lose money in their stock investments anyway, he added. Chen said the MOF would solicit opinions from other government officials as well as from scholars and business leaders. He pointed out that the gap between the rich and the poor has continued to expand and the exemption of the stock trading income tax is an unfair tax policy. Please see FALLS on page

Finance Minister Lin Chuan has long been trumpeting the principle of fairness through the reforms of the current tax measures. But following the successive declines in share prices and loud complaints by stock investors, Lin clarified in the afternoon that the MOF “has not even thought about the tax issue for now.” Lin stressed that his ministry will first seek to build consensus on the issue of tax reforms. He added that the MOF, “will never abruptly carry out any new measures out of the blue.” He reasoned that the new talk about the resumption of the capital gains tax resulted from “falling into a trap” set up by the press. The MOF officials made the remarks related to the tax issue because they were passively responding to questions raised by reporters. The capital gains tax has been suspended since 1976 to help companies raise capital on the open market.

The tax resumption has long been a taboo for government officials after former Finance Minister Shirley Kuo announced to reinstitute the tax in late 1988. The general stock price index tumbled by 3,250 points from 8,989 in just four weeks from Sept. 24, 1988 to 5,739 on Oct. 22. Kuo, the first female finance chief of the nation, also stepped down as a result. Some analysts said they are not surprised by the continued drops in share prices in recent sessions even without the new reports on the highly sensitive issue of reviving the tax. Beijing’s military exercises, by Taiwanese troops in southern Taiwan and U.S. battleships in the Pacific Ocean all helped dampen investment sentiments. The lackluster earnings performances by many U.S. high-tech companies also contributed to the slide in Taiwan share prices, they said. However, they said the savvy investors should get ready to move back into the market because there would probably a strong rebound, most likely in mid-August, after the steep fall of Taiwan stocks.