Taiwan lawmakers voted to roll back provisions of a capital gains tax on certain stock sales and removed an index price threshold that depressed shares and dragged down market trading volume.
The tax on capital gains from transactions of more than NT$1 billion was reduced to 0.1 percent from 2.25 percent under the original law. Lawmakers also removed a 8,500-point close threshold for the Taiex index before the tax could go into effect. Legislative Yuan President Wang Jin-pyng announced the passage of revisions in a special legislative session yesterday. The benchmark Taiex index rose 1.6 percent to 7,784.80 at the close. the biggest advance since April 19.
The new rules come after stock-trading volume declined by as much as 30 percent in the first four months of the year, according to Credit Suisse Group AG. President Ma Ying-jeou’s administration and legislators argued over about 10 versions of the tax last year, prompting then-Finance Minister Christina Liu to step down. The Taiex lost 13 percent during the period.
“This would create motivation for local investors to enter the market, since the capital gains tax was always seen as a negative for stocks,” said Parker Wu, a fund manager at the Agriculture Bank of Taiwan, who helps oversee the equivalent of $98 million.
Taiwanese residents invested more capital overseas in the last two quarters of 2012 compared with the previous period, Credit Suisse analyst Christiaan Tuntono wrote in a May 20 report, citing the island’s central bank. The government’s transaction tax revenue fell by 24 percent in the first four months of the year, according to Tuntono.
Before passing the levy last year, Taiwan had exempted securities transactions from capital-gains taxes since 1990, according to the stock exchange’s website. 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 said last year when he was the chairman of Taiwan Stock Exchange Corp.
The Taiex index retreated 0.5 percent this year through yesterday, erasing gains on concern the Federal Reserve will scale back monetary stimulus as the economy recovers. The benchmark index trades at 13.4 times 12-month projected profit, the lowest since June last year, compared with the MSCI Emerging Market index’s 9.4 times, according to data compiled by Bloomberg.
The revisions may not be sufficient to serve as a catalyst for the market with the focus on liquidity and and the timing of the Fed’s scaledown of quantitative easing, UBS AG said in a report dated today.