Last week, the TAIEX ended down 3.07 percent on 8,767.86 points on a relatively small average daily turnover of NT$83.22 billion (US$2.6 billion), compared with NT$88.45 billion the previous week, according to Taiwan Stock Exchange data. The benchmark index has dropped more than 10 percent after hitting the 10,000 mark in late April and it has fallen 5.8 percent since the beginning of this year, with average daily turnover of NT$96.58 billion, below the healthy level of NT$100 billion.
Once again, lawmakers and stockbrokers are mourning the dwindling market turnover. They assert the solution is to scrap the capital gains tax on securities investments and adjust other proposed taxes that would increase investment costs and affect market liquidity.
However, this time the perceived antagonism toward the Ministry of Finance’s taxing of capital gains on securities transactions — known as a securities income tax — also involves some government officials, who say higher investment costs prevent the local bourse from gaining a competitive advantage on the global stage.
The renewed dispute over the tax issue began last week, when the Financial Supervisory Commission released the results of a survey of investors showing that heavy tax burdens, difficulty turning a profit, plans to reallocate funds overseas and volatility in international markets were the main issues affecting investors’ interest in the local market.
The survey has understandably left people concerned about the vulnerability of the market to the addition of various taxes.
In addition to the securities income tax and securities transaction tax, some find it inappropriate that investors should also pay more taxes on their dividend incomes and shoulder extra premiums for the National Health Insurance program, while seeing their tax deductibles on dividend incomes halved, in addition to a proposed tax on dividend incomes for long-term care services.
Several high-ranking officials seem to share those concerns. Financial Supervisory Commission Chairman William Tseng (曾銘宗) said there is a need to establish a fair tax system that can stand up to long-term challenges, while Taiwan Stock Exchange Corp chairman Lee Sush-der (李述德) warned that the implementation of the securities income tax is hindering development of the local bourse. The Taiwan Securities Association has also started pressing the government to end the capital gains tax once and for all.
Whether the Executive Yuan is considering a modification to the tax regulations on stock investments remains unclear, but the ministry appears to stand by its tax policy on securities transactions and capital gains. The ministry insists the capital gains levy has no effect on the ordinary trading of shares, saying that the market will return to normal once economic uncertainty recedes.
Any thought to help increase the market’s liquidity and boost investors’ trading sentiment would be good for the nation’s capital market development, yet a move to abolish the capital gains tax is simply a knee-jerk reaction, as the tax issue is not the sole reason for the market conundrum. Nonetheless, if a tax policy has not achieved economic growth and industry development objectives, but rather is hurting tax revenue and penalizing investors, modifications in tax rules are necessary on top of any argument about the principles of equity and fairness.
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