Taiwan’s stocks climbed from a 10-week low after a government panel outlined two options for investors to assess their taxable income under a possible capital gains tax on stock trades, which eased concerns over how the levy would be calculated.
The first option would be for investors to prove the actual price they paid for the securities, according to a statement posted on the ministry’s website yesterday after the tax-overhaul panel met for a second time. The alternative is for the government to pick a specific day as the basis for stock prices to determine investors’ profit. The ministry said it will submit a proposal to the Cabinet in two days to tax any capital gains made from next year on stock transactions.
The benchmark Taiex Index closed 0.5 percent higher in Taipei. The gauge settled at its lowest level since Feb. 1 yesterday after slumping 5.4 percent since the Economic Daily News reported on March 29 that the government was evaluating the levy. Foreign investors were net sellers of Taiwanese stocks in five out of the last seven trading days.
“There’s more certainty on how to identify investors’ stock income,” Sam Hsieh, a Taipei-based fund manager at Fuh Hwa Securities Investment Trust Co., who helps oversee the equivalent of $7.8 billion, said by phone today. “Previously, there was a lot of selling pressure because investors were scared they may be taxed a lot based on other possible models.”
Securities transactions have been exempt from the duty since Jan. 1, 1990, according to the stock exchange’s website. The tax was scrapped because of evasion and the government has contemplated reintroducing it since at least 1993.
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.
“The Finance Ministry will submit its proposal to the Cabinet based on what we’ve discussed,” Finance Minister Christina Liu told reporters after the tax panel’s meeting yesterday. “We will consider all the pros and cons and submit the proposal. Of course it won’t please everyone.”
Members of the tax panel were split over whether the tax should be considered part of income tax or as a so-called alternative minimum tax, she said. Taiwan in 2006 began to levy an alternative minimum tax on individuals with high income that get tax benefits or are exempt from taxes. The tax rate is a flat 20 percent for annual income exceeding NT$6,000,000 ($203,000). The income includes overseas income, stock bonuses, insurance payments and gains from trading unlisted stocks.
Investors that qualify for the tax would pay at different rates depending on levels of profit made from trading, Liu said during the tax-overhaul panel’s first meeting on April 5. Overseas investors without offices and direct business operations in Taiwan will be exempt “in principle” from the tax, she said, citing the California State Teachers’ Retirement System, the second-largest U.S. public pension fund, as an example.
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, Schive, chairman of Asia’s seventh-largest stock market, said on April 3. Shares are unlikely to 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 $250 million more Taiwanese equities than they bought yesterday, according to stock exchange data. Net sales this month were $536.5 million, the data show.
The Taiex has risen 8 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 14.8 times estimated profit, a 38 percent premium to the MSCI Emerging-Markets Index’s multiple of 10.7, data compiled by Bloomberg show.