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Taiwan Cabinet Approves Capital-Gains Tax on Stock Trades

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April 26 (Bloomberg) -- Taiwan’s Cabinet approved a finance ministry plan to tax capital-gains on securities trading from next year, scaling back the levy for individual investors after the proposal caused stocks to slump.

Individuals who earn more than NT$4 million ($136,000) annually from trading will incur a tax of 15 percent to 20 percent, the Cabinet said in a statement. Gains from futures trading will be exempt, according to the statement. The finance ministry’s previous proposal had a 20 percent tax on returns from trading stocks, options and futures exceeding NT$3 million.

“We estimate between 10,000 and 20,000 individuals will be taxed, depending on whether it’s a bull or bear year,” Finance Minister Christina Liu said in Cabinet today. “Very, very few people will be taxed,” she said, adding that there were about 9 million individual investors in Taiwan.

The government is watering down the levy for individual investors who account for 65 percent to 75 percent of all shareholders in Asia’s seventh-largest equity market, according to stock exchange estimates. The tax, which still needs lawmakers’ approval, may not make it to the current legislative yuan session that ends in May, Liu said. The next session starts in September.

The benchmark Taiex Index sank 0.6 percent to 7,521.35 at the close in Taipei. The gauge has fallen 6.4 percent since March 28 when a government panel held its first discussion on the tax, compared with the MSCI Emerging Markets Index’s 2.7 percent decline. Trading volumes have slumped more than NT$150 billion in that period, Wu Tang-chieh, vice chairman of the Financial Supervisory Commission, said in parliament yesterday.

Overseas Investors

“They are adjusting it so that there will be less conflict when it’s presented to the legislature,” said Sam Hsieh, a Taipei-based fund manager at Fuh Hwa Securities Investment Trust Co., who helps oversee the equivalent of $7.8 billion. “It’s good that the rules seem to be more relaxed. The eventual outcome may not be as bad as we imagine it to be,” Hsieh said by phone today.

Local institutional investors who earn in excess of NT$500,000 will be taxed as much as 15 percent, up from the previous plan for 12 percent, according to today’s statement. Investors holding stocks for three years and more will be taxed based on 50 percent of their gains, while overseas investors without offices and direct business operations in Taiwan will be exempt, Liu said.

President Ma Ying-jeou and his opposition said during elections earlier this year that the tax should be imposed to help narrow a wealth gap among Taiwan’s population.

The Taiex has risen 6.4 percent in 2012 on signs of a recovery in the U.S. economy and speculation Ma’s re-election as president will lead to stronger economic ties with China. The stock gauge is valued at 14.5 times estimated profit, down from 15 times on March 29. It’s still trading at a 38 percent premium to the MSCI Emerging-Markets Index’s multiple of 10.5, according to data compiled by Bloomberg.

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