Proposed tax significant: First Financial

‘MANAGEABLE’::A proposed tax hike could reduce the conglomerate’s annual earnings by 9.7 percent based on last year’s net income, company data showed

By Crystal Hsu  /  Staff reporter

Tue, Feb 25, 2014 - Page 13

State-run First Financial Holding Co (第一金控) yesterday expressed its surprise at a government plan to increase business tax on the financial sector, but labeled the extra burden “significant, but manageable.”

“We are astonished by the Ministry of Finance’s plan to hike business tax rates from the current 2 percent to 5 percent on the financial sector, especially on banks,” First Financial investor relations chief Annie Lee (李淑玲) told an online investors’ conference.

The planned tax increase, which still needs to be approved by the legislature, would increase the firm’s tax expenses by an additional NT$1.05 billion (US$34.51 million) a year, Lee said.

The additional costs could reduce the bank-focused conglomerate’s earnings by 9.7 percent based on its net income of NT$10.87 billion last year, company data showed.

The Financial Supervisory Commission (FSC) called on the financial sector in a statement issued later in the day to support the government’s efforts to strengthen the nation’s finances, which is critical to the sector’s healthy operations.

Since 1999, the government has cut the business tax from 5 percent to 2 percent to help the sector weather the regional financial downturn and has poured NT$287.5 billion to help bail out troubled financial institutions since 2001, the commission said.

The commission said in the statement that it will announce more deregulations this year to support the sector, after easing rules for offshore banking and securities units to give the sector more room to boost its operations and earnings ability.

FSC Chairman William Tseng (曾銘宗) has said on several occasions he is receptive to a business tax hike for financial institutions, but suggested putting off the adjustment until the nation’s economy shows a stronger recovery.

The tax increase is expected to cost the sector NT$30 billion in earnings a year, according to the commission’s estimate.

The additional tax expense is “significant, but manageable,” Lee said, as First Financial is looking to expand overall loan books by 4 percent to 5 percent this year and place more emphasis on overseas and offshore lending operations, as they generate higher returns.

Furthermore, the company expects to grow its fee income by 15 percent this year on the back of strong wealth management business and offshore yuan transactions, Lee said.

Toward that end, main subsidiary First Commercial Bank (第一銀行) plans to open a branch in Chengdu, China, in the first half of the year and is seeking to open a sub-branch in the Shanghai free-trade zone, Lee said, adding that the lender is still waiting for approval to set up rural banks in Henan Province.

The bank is eyeing other emerging markets in Asia and will soon make a presence in Cambodia and Myanmar, Lee said.

Shares in First Financial ended down 0.27 percent to NT$18.2 yesterday, better than the TAIEX’s 0.48 percent fall, Taiwan Stock Exchange data showed.