Taiwan’s Capital-Gains Tax on Trading May Raise $365.6 Million

A proposed capital-gains tax on Taiwanese securities trading will probably raise as much as NT$11 billion ($365.6 million) in tax revenue, according to the island’s Ministry of Finance.

Taiwan’s parliament approved a plan yesterday paving the way for the introduction of the levy, capping almost four months of government debate that helped drag the island’s stock market lower. The plan will likely affect 10,000 investors, the finance ministry said in a statement.

The Taiex (TWSE) Index, the benchmark stock gauge, has lost 13 percent since a government panel held its first tax discussion on March 28. The government and legislators argued over as many as 10 versions of the bill, prompting the resignation of Christina Liu as finance minister on May 29. Lawmakers have been at odds over the levy that is aimed at narrowing a wealth gap among Taiwan’s population and bolstering government finances as economic growth slows.

“This proposal has dragged on for so long and it’s finally come to an end,” Bryan Chen, a fund manager at Taipei-based Union Securities Investment Trust Co., said in a phone interview yesterday. “Confidence will increase by a little.”

The two-stage tax proposal approved yesterday gives retail investors the option from 2013 to 2014 to either pay a flat 15 percent tax on stock gains or pay a levy linked to the performance of the benchmark index. From 2015, the tax will only apply to “active” investors, non-residents and shareholders of unlisted companies, as well as those selling larger amount of stocks in the island’s emerging board and shares in initial public offerings. Domestic institutional investors will pay a 12 percent to 15 percent tax on gains.

Tax Evasion

Taiwan has exempted securities transactions from capital- gains taxes since Jan. 1, 1990, according to the stock exchange’s website, when the tax was set aside a year after its introduction because of widespread evasion. Stocks fell for 19 consecutive days, tumbling 33 percent in a month, when the plan for the tax was first discussed in 1988, Schive Chi, chairman of Taiwan Stock Exchange Corp., said on April 3. The government has contemplated reintroducing it since at least 1993.

The Taiex gained 0.3 percent to 6,997.82 as of 10:15 a.m. local time, taking its decline this month to 4.1 percent. The gauge trades for 14.9 times estimated profit, less than its three-year average multiple of 15.5, according to data compiled by Bloomberg.

‘Bigger Overhang’

“While the passage of the capital gains tax will remove one of the market overhangs, we believe the bigger overhang actually has more to do with fundamentals,” William Dong and Camellia Cheng, analysts at UBS AG, wrote in a report dated July 23. “The current difficult market environment is attributable more to global macro uncertainty and the euro debt crisis.”

President Ma Ying-jeou is seeking to boost an economy that grew 0.39 percent in the first quarter, the weakest pace since 2009. Ma has ordered the Cabinet to study possible fiscal measures as Europe’s sovereign-debt crisis and a growth slowdown in China hurt Taiwanese exports.

Taiwan’s tax revenue accounted for 12.8 percent of gross domestic product in 2011, down from 13.6 percent in 2008, according to data on the Ministry of Finance’s website. The island collected NT$1.7 trillion in tax last year, according to the website.

Boosting Investments

Taiwan will shift its focus from checking inflation to boosting investments and infrastructure construction to spur economic growth, Kuan Chung-ming, minister without portfolio, said in a briefing in Taipei yesterday.

The island’s statistics bureau cut its 2012 economic growth forecast in May to 3.03 percent from an April estimate of 3.38 percent. The government may report on July 31 that gross domestic product increased 0.5 percent in the second quarter from a year earlier, according to the median estimate in a Bloomberg News economist survey.

While the approval on the tax plan “has resolved the uncertainty issue, the weak economy will continue to be a key factor and hurt the stock market ultimately,” Union Securities Investment’s Chen said.

To contact the reporters on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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

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