Government officials yesterday dismissed a report that it may reinstate the levy on stock trade earnings, saying the matter was still being studied and no decision would be made without a public consensus.
The Chinese-language Economic Daily carried a front-page story saying that the government was working toward taxing corporate stock transaction incomes.
The news caused the TAIEX to tumble yesterday morning, with the index shedding more than 100 points.
The drop tapered off and recovered to a small gain after Premier Wu Den-yih (吳敦義) said he had yet to receive the Ministry of Finance’s tax reform proposal.
Wu declined to say whether he favored the levy or not, but said the government would be very cautious in considering the option.
The government taxed stock transactions gains in 1989 but scrapped the levy soon later after the TAIEX plunged 19 consecutive days from 8,000 points to 4,763, losing more than 40 percent.
The finance ministry issued a statement later yesterday saying capital gains tax was just one of several options the Cabinet’s Tax Reform Committee was scheduled to discuss later this month.
The committee would not come to any conclusions without first seeking public support, the statement said.
“The matter will have to go through discussion in the committee, the ministry and the Cabinet before heading to the legislature,” it said.
“All tax reform proposals will have complementary measures as well as the backing of the public,” it said.
Chinese Nationalist Party (KMT) Legislator Lai Shyh-bao (賴士葆) said chances were slim that a proposal to bring back the capital gains tax would clear the legislature given its unpopularity.
KMT Legislator Lo Ming-tsai (羅明才) urged the finance ministry to think twice before proposing to reinstate the levy.
The tax could hit the economy just when it is showing signs of recovery, Lo said.
The local bourse dipped 3.28 points, or 0.04 percent, to close at 7,596.6 yesterday on turnover of NT$129.48 billion (US$4.01 billion), Taiwan Stock Exchange data showed.
Eric Lai (賴建承), an analyst at Marbo Securities Consultant Co (萬寶證券投顧), said the capital gains tax had proven a poison each time the government has broached the subject.
No investors would support it, he said by telephone.
“The government had better drop the matter in case these discussions disrupt the economic recovery,” Eric Lai said.
The state coffers could suffer even if the government decides it is fairer to tax trade earnings and abolish the securities transactions tax.
The latter tax offers more stable revenues than the former because there is no guarantee that all transactions are profitable, Eric Lai said.
“Investors would demand compensation for losses if they had to pay taxes on their trade earnings,” the analyst said.
Steel and iron stocks saw the biggest decline yesterday at 1.5 percent, followed by airline and shipping stocks and financial shares, which fell 1.33 percent and 0.9 percent respectively.
Meanwhile, flat panel and electronics stocks advanced 2.34 percent and 1.02 percent each.
Losers outnumbered gainers, with 1,477 stocks going down in value and 1,096 going up.
Foreign institutional investors sold a net NT$3.282 billion in local shares, the exchange data showed.
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