Taiwan’s Finance Ministry proposed a capital-gains tax on stock transactions to the Cabinet as the island seeks to raise revenue and redistribute returns from trading more equitably among its 23 million people. Shares and the currency rose.
Individual investors who earn more than NT$3 million ($102,000) annually from trading stocks, futures, and options will incur a 20 percent tax from next year, Finance Minister Christina Liu told reporters yesterday. Local institutional investors who earn in excess of NT$500,000 will face a 12 percent levy, while overseas investors without offices and direct business operations in Taiwan will be exempt, she said.
“We proposed the tax by choosing a simple and doable way, and we hope to build a healthy and fair system in the long term,” Liu said. The proposal needs the endorsement of Taiwan’s Cabinet before it can be presented to lawmakers for approval, she said.
The benchmark Taiex Index (TWSE) closed 1.6 percent higher today at 7,788.27, the biggest advance since Feb. 29. Taiwan’s dollar gained 0.2 percent, the most since March 30, to NT$29.50 against its U.S. counterpart. The Taiex has lost 3.1 percent since the Economic Daily News reported on March 29 that the government was considering the levy. Foreign investors were net sellers of Taiwanese stocks in eight out of the 10 trading days through yesterday.
During elections earlier this year, President Ma Ying-jeou and the opposition said that the tax should be imposed to help narrow a wealth gap among Taiwan’s population. Securities transactions have been exempt from capital-gains duty since Jan. 1, 1990, according to the stock exchange’s website. The tax was scrapped because of widespread evasion and the government has considered reintroducing it since at least 1993.
“The stock capital-gains tax plan marks the administration’s commitment to fulfilling a campaign pledge to social justice and fairness,” Liao Da-chi, director at the National Sun Yat-sen University’s Institute of Political Science, said by phone yesterday.
Investors holding stocks for longer than five years will be taxed based on 50 percent of their gains, Finance Minister Liu said. The government will retain an existing securities transaction tax of 0.3 percent, Liu said. About 1 percent of individual investors and 0.3 percent of institutional investors will qualify to pay the tax, according to Liu.
“The uncertainty from the capital gain tax has been removed,” Diana Wu, a vice-president at Capital Securities Corp., wrote in an e-mail. “Though most investors aren’t happy about the capital-gains tax issues, the Ministry of Finance proposal is acceptable.”
The California State Teachers’ Retirement System, the second-largest U.S. public pension fund, was cited by Liu as an example of a so-called offshore foreign investor that would be exempt from the capital-gains tax in comments made at the first meeting of a government tax-overhaul panel on April 5. After the second meeting on April 9, the panel outlined two options for investors to assess their taxable income in a bid to ease investor concerns over the levy.
In 1988, when the plan for a capital-gains tax was discussed, stocks fell for 19 consecutive days, dropping by about a third in a month, Schive Chi, chairman of Taiwan Stock Exchange Corp., said in an April 3 interview. Shares probably won’t slump as much this time because more companies are traded on the bourse and there is a larger proportion of overseas investors, he said.
Foreign investors sold about $234 million more Taiwanese equities than they bought yesterday, according to stock exchange data. Net sales this month were $1.1 billion.
The Bank of New York Mellon Taiwan Index of Taiwanese American depositary receipts traded in the U.S. rose for a second day, adding 0.7 percent to 221.32.
ADRs of Silicon Motion Technology Co. (SIMO:US), a Taiwanese semi- conductor company, jumped 4.4 percent to $19.33 in New York yesterday, the biggest advance in more than three weeks. ChipMOS Technologies Bermuda Ltd. (IMOS:US), a semiconductor testing and service firm based in Hsinchu, Taiwan, rose 3.2 percent, the most for almost two weeks, to $15.45 in the U.S.
“It’s good news” for the Taiwanese market that foreign investors are exempted from the tax, Win Thin, the global head of emerging-markets strategy at Brown Brothers Harriman & Co. in New York, said by phone. “They’ve exempted foreigners, foreigners don’t want to be taxed. That’s a good sign.”
The Taiex has risen 10 percent this year, after 2011’s 21 percent slide, on speculation the U.S. economy will recover and Ma’s re-election as president on Jan. 14 would lead to stronger economic ties with China. The stock index is valued at 14.9 times estimated earnings for member companies, a 41 percent premium to the MSCI Emerging-Markets Index (MXEF)’s multiple of 10.5, data compiled by Bloomberg show.
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