The TAIEX yesterday slumped the most among Asia’s markets after the Chinese-language Economic Daily News reported that the Ministry of Finance is considering a capital gains tax on share transactions, and on reports that orders for US durable goods rose less than expected.
The benchmark index fell 165 points, or 2.1 percent, to 7,872.66 at the close of trading in Taipei, the biggest loss since Dec. 19.
Taiwan Semiconductor Manufacturing Co (台積電), which has the biggest weighting on the index, fell 1.6 percent to NT$84.10. United Microelectronics Corp (聯電) slid 2.7 percent to NT$14.70.
The Ministry of Finance plans to submit a tax and fiscal reform plan in September and capital gains tax will be regarded as a top priority, the Economic Daily News reported, citing Minister of Finance Christina Liu (劉憶如).
“There’s some panic selling, as it seems more certain now,” said Sam Hsieh (謝良武), a Taipei-based fund manager at Fuh Hwa Securities Investment Trust Co (復華投信), who helps oversee the equivalent of US$7.8 billion. “They have been talking about doing it for a while. The report seems to be more certain today, but we need more details on what the tax is going to be like.”
However, Liu said she did not think there was a direct link between the TAIEX’s decline and the capital gains tax issue, as the stock market’s downtrend was mostly in line with a decline in most of the world’s major stock markets.
Turnover remained at an acceptable level, Liu said.
“The TAIEX is alright,” Liu told the reporters. “Investors should not panic.”
To reduce the adverse impact of the ongoing discussions about capital gains tax on the stock market, Liu said members of the task force on national taxation and finance would do their best to produce a proposal as soon as possible.
The Financial Supervisory Commission (FSC) would also strengthen its mechanisms to curb speculative short-selling, Liu said.
The state-run National Stabilization Fund would continue to support the local stock market until late next month as planned, she added.
However, Liu did not specify if the fund’s management committee would extend the fund’s activation period to soothe investors’ jitters.
Premier Sean Chen (陳冲) also urged investors not to over-react to the tax reform proposal because it is still under discussion.
The proposals presented by academics to the task force on tax reform were just one of the issues under discussion, Chen said, adding that the government would closely monitor the impact of the discussions on the market.
Taiwan’s benchmark index has risen 11 percent this quarter, heading for its biggest three-month gain since the quarter that ended in September 2010. Shares have rallied on signs of a US economic recovery, and President Ma Ying-jeou’s (馬英九) re-election on Jan. 14 fueled speculation that the nation would continue to strengthen ties with China.
The TAIEX is valued at 15.2 times estimated profits compared with the MSCI Emerging-Markets Index’s 10.6 times, data compiled by Bloomberg showed.
The FSC issued a statement last month citing Ma as saying the government was not considering reintroducing capital gains tax on stock trading.
Taiwan has exempted securities transactions from capital gains tax since Jan. 1, 1990, according to the Taiwan Stock Exchange’s Web site. The government has contemplated reintroducing the tax since as early as 1993.