The TAIEX rallied yesterday as trade groups hailed the legislature’s move to axe the controversial capital gains tax on stock investments, but doubts lingered over whether active traders would rejoin the local bourse.
The benchmark index picked up 1.5 percent, or 124.02 points, to close at 8,419.42 points, with all sectors except cement reporting gains, Taiwan Stock Exchange data showed.
Turnover remained moderate at NT$85.67 billion (US$2.59 billion), an increase of 5.8 percent from NT$80.9 billion one day earlier.
Photo: CNA
Foreign investors raised stakes in local shares by NT$1.33 billion net after cutting positions for seven straight sessions.
Mutual funds and proprietary traders took part in the buying binge, increasing holdings by NT$221 million and NT$24 million net respectively, TWSE data showed.
Financial Supervisory Commission Chairman William Tseng (曾銘宗) said he expects daily turnover in the stock market to rebound to normal levels and reach NT$120 billion by the end of the year with the announcement that the tax is to be removed.
Hua Nan Securities Investment Management Co (華南投顧) chairman David Chu (儲祥生) said that the stock market lost a lot of capital over the past two years due to the bad system.
After the tax is scrapped, capital is expected to return gradually, he said.
Minister of Finance Chang Sheng-ford (張盛和), the sole backer of the tax, said he would accept the setback might cost the national treasury NT$3.8 billion per year, but might boost taxes from stock transactions.
“Hopefully, the stock market can regain vigor and if it heads down, no one can pin the blame on the tax anymore,” Chang said by telephone.
It is the third time the legislature trumped government efforts to levy a capital gains tax on stock investments, reaffirming the difficulty of tax reform in the nation, said Chang, who earlier this year was named the best finance minister of the year by The Banker, an English-language monthly owned by The Financial Times Ltd, for pushing tough tax reforms to narrow the income gap.
“History teaches a lesson that it is important to approach the capital gains tax from both income and market perspectives,” Chang said.
Individual investors account for a majority in the local market and they dislike policies that might scare away active traders and affect the TAIEX, although they are not subject to the tax themselves, he said.
The Taiwan Securities Association (證券公會) said it welcomed the legislative action, saying the abolishment of the capital gains tax would restore confidence on the part of active traders and foreign funds.
It would take some time before the trading volume can return to the NT$100 million daily levels, the association said in a statement.
Capital Securities Corp (群益證券)said that in the mean time investors should exercise caution in selecting stocks, as the fourth-quarter is a typical low season for most electronics companies.
The Chinese National Association of Industry and Commerce (工商協進會) said that the legislature took the step to correct a three-year mistake, as most nations collect either a stock transaction tax or a capital gains tax, but not both.
Norman Yin (殷乃平), a professor of financial studies at National Chengchi University, said the issue might come back to haunt the government when the economy improves.
“It is fair and reasonable that people who earn more pay more taxes,” Yin said by telephone.
Yin said he had doubts whether funds that have fled the nation would come back, given the nation’s poor economic showing this year.
“Money tends to flow toward places it can make a profit,” he said.
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