Major market players, securities brokers and their major clients said that heavy tax burdens, difficulty turning profits and plans to reallocate funds to markets are the top three reasons for decisions to take flight from the local bourse, a survey released yesterday by the Financial Supervisory Commission (FSC) showed.
As for retail investors, volatility in international markets, increasing misgivings caused by the TAIEX’s continued rise and excessive tax burdens on trading were the main factors holding them back from the market, the survey showed.
It showed that 76 percent of active traders, 94 percent of brokers and their major clients, and 59 percent of retail traders had reduced their positions in the local stock market compared with three years earlier.
The survey showed that active players are opposed to the transaction tax, the levying of a 2 percent supplementary National Health Insurance premium on stock dividends, the halving of the tax deductible amount for stock dividend income and the introduction of a 45 percent bracket for consolidated personal income tax.
However, the 0.3 percent securities transaction tax, instead of the much-maligned capital gains tax, was cited as the main reason behind major players leaving the local market, the survey showed.
On Wednesday, a local brokerage association called on the government to scrap the capital gains tax on stock investments and cut the securities transaction tax from 0.3 percent to 0.15 percent to revitalize the capital market.
The commission sent out 1,122 questionnaires to active players, 300 to security brokers and their major clients, and 200 to retail investors. About 83 percent of active players responded to the survey, while the figure stood at 100 percent for the two other groups.
“The survey is aimed at uncovering the facts surrounding investors’ motivations,” FSC Chairman William Tseng (曾銘宗) said.
Investors voiced several suggestions to the commission, including improving cross-border collaborations with international securities exchanges, delaying the implementation of expanded trading hours, approving a more complete array of day-trading activities and increasing the number of listed exchange traded funds based on Chinese stocks, Tseng said.
“There is no clear and immediate correlation between taxation systems and market performance,” Tseng said, adding that there is no quick fix for the market woes and the tax issue is one of many factors.
“The FSC’s task is to aid in the establishment of an appropriate and just tax system that can stand up to long-term challenges,” he said, adding that he is not pushing for taxes to be as low as possible.
The TAIEX dropped 127 points yesterday, while most neighboring markets closed higher.
Tseng attributed the decline in the local bourse to disappointing earnings by Apple Inc, among other factors.
“One should not assess market performance by merely observing one or two days of trading,” he said.
He estimated that daily turnover in the stock market might not exceed the NT$120 billion to NT$130 billion (US$3.82 billion to US$4.13 billion) range this year.
Turnover was NT$101.12 billion on the Taiwan Stock Exchange yesterday.
Nonetheless, the commission and the Ministry of Finance hold differing views over the tax issue and that is perpetuating uncertainty in the market.
Minister of Finance Chang Sheng-ford (張盛和) stood by taxes on securities transactions and capital gains, saying that the economic slowdown is responsible for the TAIEX’s slump and tax cut talks serve only to blur the issue.
“The poor TAIEX showing has more to do with the economic slowdown and failure to address the fundamental issue does the market no good at all,” Chang told reporters after the Cabinet’s weekly meeting.
It is unfair to blame either tax, since no listed firm has paid any capital gains tax yet and the stock transaction tax has been in place for 23 years, during which time the local bourse has witnessed heavier corrections, he said.
The Cabinet is working to improve the economy and the stock market is likely to get a boost once its measures are in place, he said.
Additional reporting by Crystal Hsu
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