MOF to send tax proposal to Cabinet today

The China Post news staff

The China Post news staff–The Ministry of Finance (MOF) will today submit its official version of its capital gains tax proposal to the Cabinet for approval, after taking into consideration different suggestions from experts and the community, Finance Minister Christina Liu (劉憶如) said yesterday. After much speculation and the emergence of several different proposals about how the tax could be imposed, the MOF has integrated different opinions and suggestions into its final version which it will announce today, Liu said. No matter how the capital gains tax will be levied, two things appear certain: The tax won’t be retroactive, meaning that investors will only be required to list their securities investment gains earned from 2013 onward; and capital gains earned from investment in offshore funds won’t be taxed.

Liu added that in mapping out its official proposal, the MOF will weigh several key factors, such as the stability of the government’s tax revenues, the cost of imposing the tax, the impact on domestic financial markets and the economy, and international taxation competitiveness. It’s widely believed that the MOF will embrace the compromise of “separate tax and consolidated reporting” for the imposition of the tax, instead of incorporating the tax into the minimum tax burden system, since the latter’shigh deduction amount of NT$6 million renders the tax levy insignificant.

The MOF believes that due to the NT$6 million threshold for taxation and deduction, the minimum tax burden system cannot zero in on those who make substantial gains in the stock market.

Under the minimum tax burden system, a family with a basic total income — including taxable income and tax-free income — exceeding NT$6 million will be subject to a tax levy. For example, if a person has taxable income of NT$500,000 and tax-free transaction gains of NT$6 million for a total of NT$6.5 million, the tax would be levied for gains of NT$6 million. On the other hand, if a person has only NT$6 million in tax-free gains, the income would not be taxed as it does not surpass the deduction amount of NT$6 million.

Therefore, the MOF is likely to institute a separate tax rate for high securities transaction gains which will be filed along with other incomes on tax returns. Also yesterday, Lee Chin-tu, a famous investor known by his nickname Uncle A-tu, said that the final version of the capital gains tax announced by the MOF would seriously undermine the interests of general individual investors. Lee vowed to fight the tax and lead individual investors in protest.

Meanwhile, Morgan Stanley Securities Taiwan yesterday released its latest report on the capital gains tax issue, showing that foreign institutional investors and local individual investors are expected to be exempt from the tax and therefore total shareholdings recorded by those who might be taxed are estimated at only 10-15 percent of shares of all the listed firms. The report also indicated that insurance firms would bear the brunt of the tax’s impact, given the high ratio of stock investments to their operating funds.