Taiwan’s Finance Minister Christina Liu resigned after disagreeing with legislators from the ruling party over a proposed capital gains tax, dealing a blow to President Ma Ying-jeou.
The Kuomintang party caucus yesterday put forward a proposal for a levy on share trades that links tax rates to the benchmark Taiex stock index, watering down an earlier plan from the ministry that sought a flat rate to force wealthier investors to pay more.
“Under the KMT version, investors reaping massive profits from stock trades won’t need to pay a gains tax, which differs greatly from the ministry’s proposal,” Liu said in a statement on the ministry’s website today. “I am resigning, as I can’t accept the thinking behind the proposal.”
Liu was appointed Finance Minister in January after Ma won re-election. The resignation of the island’s former economic planning head nine days into Ma’s second term may signal a policy gap between the president and ruling party legislators.
“This resignation shows that the president and the Cabinet haven’t solidified their power within the legislature,” said Bruce Jacobs, a professor of Asian languages and studies at Monash University in Melbourne. “If you want to have a successful government you need to have your legislature onside, which means Ma could be in trouble over the next few years.”
The resignation needs the acceptance of Premier Sean Chen, who heads the Cabinet. Chen, who oversaw the island’s markets during the 2008 economic crisis, and announced Liu’s appointment in January, has yet to meet with her, and plans to do so to discuss the tax, Hu Yu-wei, a Cabinet spokesman, said in a press conference today.
KMT legislators propose allowing stock investors to choose between a securities transaction tax with a progressive rate tied to the benchmark index, and one that imposes a levy on the gains as part of personal income tax calculation, according to a draft copy of the plan.
The market-linked proposal applies when the Taiex climbs above 8,500 points, with the rate rising every 1,000 points and topping out above 10,500 points.
The Taiex index closed 2.9 percent higher today, the biggest advance since Dec. 21, 2011.
“Investors are obviously much happier with this proposal, compared with the previous capital gains tax plan,” said Robyn Hsu, who helps oversee about $6.7 billion as a fund manager at Capital Investment Trust in Taipei.
Ma was sworn in for a second four-year term on May 20 after winning on a pledge to help tackle a wealth gap which the opposition said widened during his first term. He has built closer ties with China to boost cross-strait trade even as a faltering global recovery has hurt the export-dependent economy.
Taiwan last week cut its growth forecast for 2012 and said gross domestic product rose 0.39 percent in the three months through March from a year, the weakest pace since 2009.
The appointments of Chen and Liu were part of a leadership transition after Ma’s re-election. Liu was chief economist at Chinatrust Financial Holding Co. before she became minister of the Council for Economic Planning and Development. She was a member of the Cabinet tax reform committee between 2008 and 2009.
The resignation comes after approval for Ma fell to 20 percent this month, the lowest since August 2009, a TVBS Poll Center survey showed on May 17.
“The Finance Minister’s latest move won’t affect our plan for the legislature’s latest tax draft,” Lin Hung-chih, executive director of the KMT policy committee, said by phone today. “We will still seek to have the legislature’s Finance Committee discuss the proposal at a meeting on June 4.”
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