The legislature’s Finance Committee yesterday passed the first reading of a bill to cut the transaction tax on day trading by half.
The government aims to boost turnover on the local equity market by attracting short-term funds through cutting the tax from 0.003 percent to 0.0015 percent for one year.
The legislature is scheduled to review the bill’s second and final readings next month, with market watchers saying they see no difficulty in the bill clearing the legislative floor.
The bill could be implemented at the end of next month at the earliest, which would make Taiwan the first market in the world to cut day trading tax, market watchers said.
The bill drafted by the Executive Yuan was favored by the committee over other proposals seeking to lower the tax to 0.001 percent for three years or extend tax exemptions.
The tax cut would reduce annual government revenue by NT$3.75 billion (US$123 million), Minister of Finance Sheu Yu-jer (許虞哲) said during a question-and-answer session at the committee.
It would require an NT$10 billion increase in average daily turnover on the local bourse to offset the government’s revenue loss, Sheu said.
Compared with a proposed cut to 0.001 percent that would cause a NT$5 billion annual loss in tax revenue, the bill ensures that the government would have stimulus measures if needed, while the one-year duration would prevent unrecoverable revenue shortfalls during the time the policy is tested, Sheu said.
Following the tax cut, average daily turnover on the Taiwan Stock Exchange (TWSE) is expected to increase by NT$10.08 billion, and turnover at the Taipei Exchange (TPEX) is expected to increase by NT$5.82 billion, Securities and Futures Bureau Deputy Director Chang Chen-shan (張振山) told a news conference in Taipei.
Day trading’s share in total turnover at the TWSE would rise from 10 to 15 percent, Chang said, adding that the same metric would rise from 15 to 22.52 percent for the TPEX.
Meanwhile, the amount of securities transaction tax collected last year fell to NT$70.8 billion, the lowest in 11 years, amid declining turnover, TWSE data showed.
The data also showed that share turnover ratio on the nation’s main board — a measure of stock liquidity — last year fell to 64.6 percent, a record low.
The ratio, which is calculated by dividing the total number of shares traded over a period by the average number of shares outstanding for the period, has been falling since 2010, when it stood at 136.75 percent, giving rise to concerns about businesses’ ability to raise funds.
Market watchers have attributed lagging momentum on the local bourse to heavy institutional trading, a lack of investor confidence, persistently low price-to-earnings ratios and investors’ preference for holding positions to earn dividend returns.
The TAIEX yesterday edged up 0.08 percent to 9,930.74 points on a turnover of NT$99.84 billion.
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