Taiwan’s securities houses and fund managers yesterday voiced disappointment at the passage of a capital gains tax and said the legislation, while watered down, would drag on investor confidence amid a weak global economy.
Beginning next year, capital gains from securities investments are subject to extra transaction taxes of between 0.02 percent and 0.06 percent whenever the TAIEX rallies above 8,500 points, as part of the tax bill that cleared the legislature yesterday.
The tax rates for gains from initial public offerings (IPOs) and unlisted shares are 15 percent — regardless of the main index’s levels — with holdings in excess of one year to be cut by 50 percent and by another 50 percent in excess of three years.
Institutional players will have to pay alternative minimum taxes, at rate of between 12 percent and 15 percent, from the current 10 percent, based on the new tax law.
“It is regretful that the government insists on imposing capital gains taxes at a time when the world is struggling to contain the fallout from Europe’s escalating debt problems,” Grand Fortune Securities Co (福邦證券) chairman Jerry Huang (黃顯華) said.
Huang said securities houses may have to shed 5 percent of employees and shut down some outlets to cope with shrinking incomes.
There are 86 securities houses with 1,200 outlets nationwide, employing 50,000 people, according to the Taiwan Securities Association (證券公會).
Securities houses are heavily reliant on brokerage business for income and need a daily market turnover of NT$100 billion (US$3.31 billion) to break even, Fitch Ratings said.
Trading volume should have hovered around NT$100 billion despite the slowdown if not for the capital gains tax, Huang said, adding that turnover used to average NT$80 billion when the weighted index stood at current levels.
The TAIEX ended down 0.42 percent at 6,979.13 points yesterday, falling below the 7,000-point line on a turnover of NT$65.6 -billion, Taiwan Stock Exchange data showed.
Foreign funds cut a net NT$12.3 billion in local shares yesterday, a huge amount in light of thin trading, according to stock exchange statistics.
The 8,500-point threshold renders the imposition of the tax unlikely for the foreseeable future, given the poor economic outlook at home and abroad, Huang said.
“The levy will serve no purpose except to weaken market sentiment,” he said.
A flat 15 percent rate will replace the index-linked design in taxing capital gains from 2014 onward for investors who sell more than NT$1 billion worth of securities a year, according to the recently approved law.
While uncertainty over the tax has finally cleared, the local bourse may continue to see tepid trading as foreign funds and major domestic players need more time to digest the new levy, Securities Investment Trust and Consulting Association (投信工會) chairman Henry Lin (林弘立) said.
“The market will not welcome the capital gains tax despite revisions to lessen its impact as seen in the flight of foreign funds,” Lin said.
Minister of Finance Chang Sheng-ford (張盛和) said the equity market would pay attention to economic fundamentals, not just the new law.
“The version of the tax that the legislature passed will have a limited impact on the market,” Chang told a press conference last night.
The tax will be applied for at least two years before the ministry evaluates the possibility of a revision, Chang said.