The Financial Supervisory Commission (FSC) yesterday reiterated its concern over the Cabinet’s plan to tax capital gains on securities investments without providing supporting measures, saying it could further weaken market sentiment, cut stock transactions and put brokerages out of business.
Commission Vice Chairman Wu Tang-chieh (吳當傑) voiced the warning ahead of the Cabinet’s regular meeting on Thursday, when it is likely to finalize the capital gains tax proposal.
The TAIEX shed another 0.35 percent yesterday, with turnover remaining sluggish at NT$72.4 billion (US$2.45 billion).
“As a financial regulator, the FSC has the responsibility to brief the Cabinet about the potential fallout from the proposed tax,” Wu said by telephone.
The Ministry of Finance has proposed imposing a capital gains tax of 20 percent on individual investors who secure a net gain of more than NT$3 million a year. It has also proposed levying a 12 percent tax on domestic institutional investors’ net gains in excess of NT$500,000 a year. Foreign institutional players are exempted from the levy.
The proposal is slowing liquidity and it has weighed on the competitiveness of the local bourse, as evidenced by the falling trading volume in recent sessions, Wu said.
The downward trend in transactions may drive some securities houses to lay off employees or close down their operations, Wu said.
To mitigate its potentially negative impact, the commission has suggested that the government lower the securities transaction tax and scrap the futures transaction levy if it must tax capital gains on futures deals, Wu said, adding that no other country collects taxes on futures transactions.
Wu, who attended a cross-
ministerial discussion on Thursday last week on behalf of the commission, said the Cabinet has yet to reach a consensus on the issue.
He rebutted media reports yesterday that the Cabinet plans to keep the proposed capital gains tax on securities investment as is, but that it might be flexible on the tax on futures transactions.
The Taiwan Securities Association (證券公會) also joined the call for the Cabinet to reconsider the capital gains tax proposal, warning that its members might have to cut their staff by 30 percent or more because of shrinking business as major players flee the market to avoid the tax.
Big players, numbering about 10,000, account for 40 percent of daily transactions, the association said in a statement after calling a second meeting in a week yesterday.
The slowing trading volume suggests that some had already exited the market, with more likely to follow suit if the government pushes ahead with the capital gains tax, association chairman Hwang Min-juh (黃敏助) said.
“A mistaken policy is worse than corruption,” Hwang said.
“The capital gains tax may put securities houses out of business,” he said, adding that this would lower their contribution to the national treasury and would not help the government’s plan to promote social justice.
The association plans to place advertisements to press its case and take to the streets, if necessary, if the government fails to respond positively, the statement said.
Tax revenues from securities transactions dropped 14.8 percent last quarter from the same period last year, it said.
In response to these concerns, Minister of Finance Christina Liu (劉憶如) said late yesterday that a daily turnover of NT$70 billion was “nothing abnormal,” rejecting suggestions that the ministry’s tax proposal had negatively affected stock market transactions.