💰 Securities Transaction Tax: An Old Term Revived by the Ma Ying-jeou Government, and the Historical Ghost of Minister Kuo Wan-jung
“Securities Transaction Tax” is an old term that has recently been hotly debated in the media. How old? Its last appearance can be traced back to 1988 (of course, it existed even earlier). How popular? Google search records show 8,930,000 results.
🤔 A few questions to consider:
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What is Securities Transaction Tax?
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What is the difference between Securities Transaction Tax and Securities Exchange Tax?
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If there’s a securities transaction tax, why implement a securities transaction tax?
The current Minister of Finance, Liu Yi-ru’s mother, Professor Guo Wan-rong, previously promoted a “securities transaction tax” when she served as Minister of Finance. However, when the government actually implemented it, it caused the stock market to experience a continuous decline for over ten days.
According to older generations of investors, the securities transaction tax scared off a large number of investors back then. Not only was the tax rate as high as 20%, but the prevailing social climate at the time also led to its hasty cancellation. However, Professor Guo didn’t intend to abandon taxation of the securities market. Soon after, she levied the now-known securities transaction tax, which is essentially a protection fee (a slang term for a fee paid when trading in the securities market).
Currently, the securities transaction tax is levied based on each sale of shares, with the price approximately equal to the share price multiplied by $0.00299. However, the stock transaction tax doesn’t consider your profits or losses; as long as you sell stocks, the government will directly deduct it from your transaction funds.
Doesn’t that seem unfair? Banks and the government both want a piece of your investment.
Why specifically the stock transaction tax?
We need to understand that regardless of the name the government uses for taxation, it’s all a way for them to extract assets from the people. As the government’s fiscal black hole grows larger, they will come up with more tax systems under different names. The only difference lies in whether the government can collect it cleverly, skillfully, fairly, and transparently.
This time, Professor Ma Ying-jeou’s successful re-election as president immediately led to the appointment of Professor Liu Yi-ru as Minister of Finance (the “luck” of both mother and daughter serving as Minister of Finance illustrates how pragmatic politics is). This combination of professors has been implementing a series of policies even before taking office. To put it bluntly, we’ve never seen such a rapid and efficient administrative process (President Ma?) before.
The full name of the securities transaction tax is “Securities Transaction Income Tax”, which mainly taxes the “profits” from securities transactions. Some people also hope that the future system will allow even losses to be tax-deductible.
Many people hold polarized views on the government’s proposed securities transaction tax. Optimists believe that levying a securities transaction tax could reduce or even eliminate other securities transaction taxes, which would be more conducive to the vitality of the securities market. However, in President Ma Ying-jeou’s recent remarks, we seem to find that the reality is not as rosy as we imagine.
Ma Ying-jeou stated that any reform must be implemented gradually. The securities transaction tax reform plan proposed by the Ministry of Finance can at least tax income that was previously untaxed, which is more in line with the principles of fairness and justice, and should be a basically feasible plan.
I saw the description of “income that was previously untaxed” in President Ma Ying-jeou’s remarks. Friends, see? Our government’s real message is: “Wow, there’s this we can tax!”
💸 Tax Comparison: Securities Transaction Tax Isn’t Necessarily More Expensive
Within the consensus of the Executive Yuan and the Presidential Office, the securities transaction tax is a definite tax policy to be implemented. The Ministry of Finance’s current plan targets individuals who earn more than three million annually in the securities market, and current predictions suggest the tax rate will be between $5% and 20%.
Let’s take a large investor with an annual profit of $3 million as an example. Using a 5% tax rate, the minimum annual securities transaction tax payable would be $150,000. ** Looking back, under the current securities transaction tax, let’s consider a transaction that could earn $3 million in a single transaction. Assuming we buy 100,000 shares (1,000 shares) worth $100 million and sell them at $103,000, making a profit of $3 million, how much securities transaction tax would we need to pay in this transaction?
The answer is $307,970.
What! The securities transaction tax is more than $2 times higher than the securities transaction tax!
I’m using this very extreme example to illustrate that the securities transaction tax isn’t necessarily worse, and the securities transaction tax isn’t necessarily better. However, don’t forget that the government seems to be planning to take both the securities transaction tax and the securities transaction tax—to use a term from a fish restaurant near Shihmen Reservoir, it’s “two ways of cooking one fish” (or a bundled arrangement where one is chosen over the other).
** To give another example, if we buy at $100,000 and sell at $400,000, to make a profit of $3 million, we only need to invest $1 million, and the securities transaction tax would only be $11,960. This makes the difference between the securities transaction tax and the securities transaction tax a staggering $12.5 times.
No wonder some say the government is a fool not to levy a securities transaction tax.
What are the advantages of a securities transaction tax?
Under the current securities transaction tax model, the government already collects hundreds of billions of dollars annually from investors. The future securities transaction tax is reportedly targeting less than $10% of super investors in the domestic securities market. This restriction is one of the advantages of the securities transaction tax—it can collect more tax from the wealthy (those who profit from $3 million in stocks are certainly rich).
Do you remember the luxury tax the government previously proposed?
As the saying goes, where there’s a will, there’s a way. Many people have already considered various methods to combat the luxury tax, including sham marriages, rent-to-own schemes, real estate trusts, sham gifts, and fake contracts, some of which even skirt the edge of the law. In fact, the securities transaction tax and the luxury tax are similar in nature; both are taxes on the wealthy. This alone gives me, a poor person, a relative advantage in terms of choice.
However, how to prevent super-investors from abusing nominee accounts, creating a situation where there’s a tax system but no tax revenue to collect; not to mention, if the securities transaction tax is lowered to appease public opinion, will this actually lead to a decrease in government revenue? This is an issue the government should actively address (a comprehensive audit could increase labor costs, which would ultimately be covered by tax revenue).
Is the Securities Transaction Tax Only a Negative Factor?
With the heated debate surrounding the securities transaction tax, the domestic stock market “coincidentally” experienced several days of consecutive declines. Personally, I don’t believe the securities transaction tax will be a negative factor, at least not the kind that affects the entire securities market. The recent market decline, linked to the securities transaction tax, is largely due to media manipulation.
Don’t forget, even if the Executive Yuan truly wanted to levy a securities transaction tax, it would first need approval from the Legislative Yuan, and actual implementation wouldn’t occur until after 2013.
Furthermore, several factors are at play: 1. Retail investors actually constitute the majority of the domestic securities market; 2. The investors truly affected by the securities transaction tax only account for 5% of the total market capitalization. This 5% actually includes factors such as medium- to long-term investors like funds, which require careful consideration. Regardless of my analysis of these data, I don’t believe the securities market will be influenced by that 5%, especially since that 5% should be more rational (or more impulsive) than the average investor.
But reality has shown me I was wrong.
“Perhaps those ultra-sophisticated investors are selling now and buying back later to inflate exchange costs and reduce securities transaction tax expenditures.”
This is currently the most popular explanation in the market; even Chen Wen-chien mentioned this concept on a program.
However, if just 5% of investors could sway the overall market, then the world’s stock markets would have vanished long ago. Yet, it cannot be denied that these 5% of super-investors, combined with favorable timing, location, and circumstances, do indeed have the power to influence the stock market for days or even weeks—this is a kind of “momentum.” The formation of this phenomenon aligns with the basic assumptions of behavioral finance:
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Investors are irrational.
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The market’s reaction to positive or negative news is either “under-reaction” or over-reaction.
Conclusion on Securities Transaction Tax
Taiwan’s economy is not only much smaller than many countries, but its industrial value is also significantly smaller. For example, in South Korea, the total market capitalization of Samsung alone exceeds the combined market capitalization of Taiwan’s top three companies. This goes beyond simply using “market size” to excuse the government’s actions.
The government’s most important task is to revitalize the economy and encourage investment. A well-managed securities transaction tax could indeed encourage large investors to commit their funds to the stock market long-term. However, this must be based on a relatively stable market value. Currently, I only see many companies deliberately targeting investors (such as companies like Daxing and Huatai).
The securities transaction tax is a tax imposed by the government according to law. People can like it (and probably no one does), or they can hate it; we should respect both opinions.
Those who like the securities transaction tax mostly do so because it provides the government with more tax revenue (but this won’t solve the government’s long-standing problem of not being able to make or spend money). Those who hate it are undoubtedly the super-investors.
I’ve always believed that policies should be benevolent, but policies often fail to convince us. Even the current securities transaction tax issue has been handled in a dragging-out manner, spreading instability among stock market investors. This is the most serious consequence of Ma Ying-jeou’s attempt to appease everyone.
If you’re wondering whether a securities transaction tax would make our market better? Based on the information I have, I can only tell you I don’t know!
However, if you specifically ask me that the securities transaction tax will only collect money from super-investors and effectively increase government revenue, then I’m in favor (malicious intent).
Conversely, if you ask me if it would be better without a securities transaction tax? The answer is definitely no! Because things are already bad enough (shrug).