A Study on the Nature of Income and the Constitutionality of Income Tax System on Gains derived from Securities Transactions ─ in Comparison with German Law

Since our nation officially started to impose income tax on gains derived from securities transactions on March 1st, 1973, this specific tax had been suspended and re-imposed multiple times over the past decades. After the government suspended the income tax on gains derived from securities transactions on January 1st, 1990 and raised the tax rate of securities transactions to 0.6‰, investors opposed to the idea of re-imposing income tax on gains derived from securities transactions whenever the government proposed to reinstate this policy. In addition to the exaggerating reports and coverage by the media, re-imposing income tax on gains derived from securities transactions simply causes much controversy and commotion. Finally the Legislative Yuan passed through the third readings of the amendment to income tax system on gains derived from securities transactions on July 25th, 2012. The Act has come into force since January 1st, 2013, cancelling the suspense of income tax on gains derived from securities transactions under certain circumstances.

Before the amendment came into effect on July 25th, 2012, gains derived from securities transactions were tax-free according to Article 4-1 Income Tax Act, which only allowed the government to collect the securities transaction tax. This previous policy had led to many unreasonable phenomena , mainly including: 1. The unfairness of tax burdens between capital gains and income from salaries and wages; 2. The deductions of costs, expenses and losses have been unnoticed; 3. Tax preferences for gains derived from securities transactions have on the contrary made the practice reckless in defining tax avoidances. Though the reformation of tax system on gains derived from securities transactions or on capital gains should suit its measures under certain circumstances, our nation would depart further away from being a legal state (especially a substantial state) and achieving tax justice, once the decision on tax system becomes contrary to the nature of income and constitutionality. This situation is not suitable for our nation to cultivate an investment environment that meets international demands. It is necessary to review the income tax system on gains derived from securities transactions from the perspectives of the nature of income and constitutionality.

Compared to the complete and well-knit German tax law system, the tax system in Taiwan still has much room for reformation and improvement. The most important argument of the thesis is to analyze the nature of gains derived from securities transactions. Meanwhile, given the constitutionality of income tax system on gains derived from securities transactions, which is based on the protection of taxpayers’ fundamental rights, the thesis also takes into account of the German tax system on gains derived from securities transactions, to make proper recommendations for our nation. The Author expects that our nation could be in line with the international practice in the investment environment and thus achieve tax justice.