Taiwan's finance minister falls but capital gains tax survives ...

Photo: Bloomberg

Investors in Taiwan may be cheering on Tuesday, after the country?s finance minister quit her job amid opposition to a capital gains tax she had planned to implement.

The Taiex stock index rose 2.9 per cent, its biggest daily gain since last October. But tax reform is not off the agenda. Some analysts say it might not be a bad thing for the country anyway.

The tax as proposed would have affected less than 1 per cent of investors, mostly institutional ones. But volumes in the market (and, of course, the market itself) have fallen significantly since it was first mooted.

Legislators of the Kuomintang (KMT), the ruling party, had proposed a milder version of the tax initially backed by Christina Liu, the now former finance minister (pictured). The opposition backs yet another proposal that, unlike the KMT?s, would also tax foreign investors.

It?s unclear yet what version of the tax will be approved. But Cheng-Mount Cheng, an economist with Citi in Taipei, says the KMT cabinet will likely push for the tax in some form.

Analysts at Macquarie say the tax would be positive for Taiwan, even if so far it is proving to be a drag on equities.

Part of the rationale for the tax was to address concerns that households were bearing too much of the tax burden, Macquarie?s analysts argued when the tax was first proposed. That?s a common complaint by small taxpayers in democratic societies ? particularly those, like Taiwan, where incomes are stagnating. But that, Macquarie wrote, didn?t make the complaint any the less valid:

Structural weaknesses in the tax system have intensified in recent years: as seen with Taiwanese enterprises who have used their Mainland business activities as a means of managing their tax exposure and the government?s high level of indirect subsidies to state-owned enterprises? a successful launch of CGT will offer a symbolic success pushing through an overall reform for Taiwan?s public finance.

Related reading:
Taiwan: the taxman cometh. Or not, beyondbrics
Taiwan: capital gains tax, Lex
Taiwan: new corporate taxes? beyondbrics

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