Taiwan Likely to Exempt Some Foreign Investors From Tax

Overseas investors without offices and direct business operations in Taiwan will be exempt “in principle” from a capital-gains tax on stock trades that the government is deliberating, Finance Minister Christina Liu said.

The California State Teachers’ Retirement System, the second-largest U.S. public pension fund, was cited as an example of an “offshore foreign investor” that would probably be excluded in comments made by Liu during a government panel discussion yesterday about the tax. Investors that qualify for the tax would pay at different rates depending on levels of profit made from trading, she said.

The Taiex Index (TWSE) rose 0.9 percent to 7,706.26 at the close, snapping a three-day slide. The measure is still Asia’s worst- performing benchmark stock gauge in the past five trading days, losing 5 percent since Taiwan’s Economic Daily reported on March 29 that the government was evaluating the proposal. The tax panel will hold more discussions on April 9, Liu said after the stock market closed.

“We want to minimize the impact on the market,” Liu said. “We know the market is concerned about the tax and the longer time it takes, the more uncertainty we create. We will try to conclude this within a month.”

Securities transactions have been exempt from capital-gains taxes since Jan. 1, 1990, according to the stock exchange’s website. The tax was scrapped because of widespread evasion and the government has contemplated reintroducing it since at least 1993.

Wealth Gap

During elections earlier this year, President Ma Ying-jeou and the opposition said the tax should be imposed to help narrow a wealth gap among Taiwan’s population. There’s a “99 percent” chance the levy will be introduced to address social inequalities and to raise revenues, Schive Chi, chairman of Taiwan Stock Exchange Corp., said in an April 3 interview.

“If we were to impose the tax, we would want to introduce different tax rates, meaning those who profit the most will be taxed at the highest rate,” Finance Minister Liu said yesterday. “Our neighboring markets don’t tax offshore foreign investors, and we in principle will exempt tax on offshore foreign investors.”

The Taiex sank 1.6 percent yesterday to 7,639.82, the lowest level since Feb. 1, while Taiwan’s currency weakened 0.1 percent to NT$29.519 per dollar after Schive’s comments. Markets were closed on April 4 for a holiday.

“Displeasure”

“There’s a lot of displeasure among investors,” Eric Chou, who helps manage around $1.8 billion at Jih Sun Securities Investment Trust Co. in Taipei, said by phone yesterday. “The capital-gains tax proposal is negative to the market.”

Semiconductor-related stocks led gains in Taiwan’s Taiex today. ALI Corp. (3041), a maker of integrated circuits for computers, surged 7 percent to NT$50, its steepest increase since Feb. 13. HannsTouch Solution Inc. climbed 6.9 percent to NT$15.40, the most since Feb. 4.

The Taiex is still up 9 percent this year, after a 21 percent slide in 2011, 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 profit, a 39 percent premium to the MSCI Emerging-Markets Index (MXEF)’s multiple of 10.7, data compiled by Bloomberg show.

Foreign Funds

In 1988, when the plan for a capital-gains tax was discussed, stocks fell for 19 consecutive days, dropping about a third in a month, according to Schive, chairman of Asia’s seventh-largest stock market.

Shares are unlikely to slump as much this time because more companies are traded on the bourse and there’s a larger proportion of overseas investors, he said on April 3 in Boao, China.

Foreign funds sold $76 million more Taiwan stocks yesterday than they bought, paring this year’s net purchases to $5 billion, according to exchange data.

“It’s quite obvious that everyone has a different opinion on whether we should impose capital-gains tax on stocks and how we should impose it,” Finance Minister Liu said. “After the discussions, then we will try to find the best solution.”

To contact the reporter on this story: Chinmei Sung in Taipei at csung4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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