UPDATE 2-Taiwan finance minister quits over capital gains tax row
* Tax plan triggers finance minister resignation
* Draws concerns over President's policy-making power
* Party proposal levies tax when market trades above 8,500
* Taiwan stocks post best pct gain in 5 mths (Recasts)
By Faith Hung
TAIPEI, May 29 (Reuters) - Taiwan's finance minister resigned on Tuesday in protest against a ruling party proposal to water down a capital gains tax plan that has drawn the ire of stock investors.
The resignation of Christina Liu, who had authored the tax plan as part of broader reforms to address the rich-poor divide, has prompted questions over the authority of President Ma Ying-jeou's to push through tough measures.
Liu said she could not agree with the new plan proposed by the Nationalist party which further scaled back tax liability on investors after the cabinet had made adjustments to the original draft in April.
Under the new plan, investors have the choice of paying the tax when the market trades above 8,500 points or they can add their stock trading profits to their annual income. The tax rates are also much lower.
Individual investors would be required to pay 0.1 percent of their stock profit when the main index is between 8,500 and 9,499, and 0.2 percent when the index is at 9,500-10,499.
The main TAIEX index stood at 7,335.06 on Tuesday.
"Based on the proposal, those who make substantial profits in stock trading will not have to pay capital gains tax," Liu said in a statement.
She has faced criticism after the stock market hit a five-month closing low, partly because of concerns that the tax measure would drive away investors.
But analysts said frequent revisions of the tax plan undermined confidence in the Ma administration.
"Ma is the President and the head of the ruling party, but what has happened shows his administration is in a total mess," said Andrew Deng, vice president of sales in charge of foreign investors at Capital Securities.
"You can't tell if the administration is being serious in introducing the tax plan...Based on what the government has done, we are worried that it will not be able to take effective measures to help save the 2012 GDP target being revised down again," he said.
Taiwan's government cut its full-year growth forecast for a sixth time last week, adding to evidence that the road ahead is a rocky one for Asia's exporters as the shadow of Europe's debt woes lengthens over global demand.
On Tuesday, the stock market reacted positively to the new tax plan. Taiwan shares were 2.89 percent higher, their best percentage gain in more than five months.
"Our version not only offers investors flexibility, but also collects more tax than the T$10 billion ($339 million) per year projected by the cabinet," said Nationalist legislator Lai Shyh-bao.
If approved by parliament where the Nationalists have a slight majority, the tax will take effect next year.
(Additional reporting by Roger Tung and Jeanny Kao; Editing by Sanjeev Miglani)
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