The nation’s benchmark index rose the most in five months yesterday after investors welcomed a capital gains tax plan on securities investments proposed by the Chinese Nationalist Party (KMT) legislative caucus, believing the proposal may allow them to pay less tax on stock investment gains than an earlier proposal put forward by the Cabinet.
The TAIEX climbed 0.65 percent at the start of trading on news that the KMT caucus on Monday finalized its own version of a proposal on the capital gains tax on securities investments, analysts said.
The index moved further higher at about noon on news that Minister of Finance Christina Liu (劉憶如) had offered to resign because of substantial differences in the Cabinet’s tax proposal and the KMT proposal, they said.
At the end of trading, the TAIEX was 2.89 percent higher at 7,342.29, with turnover increasing to NT$93.09 billion (US$3.14 billion) from NT$44.17 billion in the previous session, the lowest since Jan. 19, 2009, stock exchange data showed. As of Monday, the TAIEX had tumbled 11.22 percent since March 28, when Liu unveiled the Cabinet-backed proposal, data showed.
Under the KMT caucus’ proposal, individual investors would be given the choice of either paying a predetermined tax on the value of trades when the TAIEX rises above 8,500 points, or reporting their gains (or losses) on the stock market with the rest of their income on their annual tax returns.
Pundits said the KMT’s proposal would have the least impact on the bourse, given the rarity of the TAIEX staying above the 8,500-point mark in the past two decades.
“The KMT’s bill on the capital gains tax is not ideal, but acceptable compared with other proposals,” said Lawrence Chang (張平沼), chairman of the General Chamber of Commerce of the Republic of China (中華民國全國商業總會).
Chang said the KMT caucus’ bill would essentially maintain the status quo as the TAIEX is unlikely to break the taxable threshold in the foreseeable future with Europe’s debt crisis escalating.
Investors with exposure to local shares could become more profitable and would be willing to contribute more to the state coffers as the TAIEX approaches the taxable limit, he said.
Capital Securities Corp (群益證券) analyst Alan Tseng (曾炎裕) said the market reacted positively to the KMT caucus’ plan as evidenced by the main bourse’s 2.89 percent gain coupled with the large turnover, a rare phenomenon of late. However, he said the taxable threshold may set an upside limit for the TAIEX, but investors by and large do not look that far into the future.
Chang Shu-hui (張淑蕙), a fund manager at Prudential Financial Securities Investment Trust Enterprise Co (保德信投信) forecast that the benchmark index would move within a narrow range of 6,800 to 7,600 in the short term, ahead of Greece’s new general election on June 17.
This story has been updated since it was first published.