The Cabinet yesterday approved a proposal to extend a 50 percent tax cut for day trading transactions for another three years, saying that the measure has played an important role in invigorating the local stock market’s turnover and liquidity.
The bill, which must still be approved by the legislature, was the result of cross-ministerial negotiations a day earlier to iron out differences between the Ministry of Finance and the Financial Supervisory Commission (FSC).
The commission had pushed for a five-year extension to boost the local exchange and benefit the national treasury, but the ministry favored a shorter extension, as critics have questioned the fairness of the tax cut and voiced concerns over a potential speculation frenzy.
An ongoing stock rout hastened consensus-building, but failed to reverse the retreat in the TAIEX, which yesterday shed another 2.68 percent, or 450.87 points, to 16,375.40 on turnover of NT$431.276 billion (US$15.42 billion), Taiwan Stock Exchange data showed.
The volume this month tumbled from a daily average of NT$652.3 billion last month, it showed.
The ministry yesterday said it approved a proposal to extend the tax cut because trading has not grown out of control, but rather substantially energized the local exchange after the tax rate was reduced from 0.003 percent to 0.0015 percent.
Daily turnover was a modest NT$98.75 billion in 2016, with day trading generating NT$10.57 billion, or 9.6 percent, the FSC said.
The practice grew rapidly to NT$37.46 billion per day, accounting for 22.3 percent of TAIEX turnover of NT$154.41 billion in the first year after the tax cut in April 2017, the commission said.
The data showed that the tax cut had a positive impact on the relationship between day trading and daily turnover, which merited an extension of the scheme to maintain the health of the local stock market, the FSC said.
Day trading soared to 45 percent of daily turnover last month and contributed NT$451 million per day to the state coffers, much higher than NT$56 million before the tax cut, the ministry said.
Day trading accounts spiked this year, with 100,000 accounts added from January to April, 200,000 in May and 212,400 last month, data showed, as a nationwide level 3 COVID-19 alert drove interest in securities investments.
The FSC said that day trading could help lower investment risks, as it allows investors to correct mistakes on the same day.
The ministry first agreed to a tax cut for a year and later extended it through the end of this year to help the local capital market.
The ministry and the commission said they would meet with lawmakers to facilitate the passage of the tax cut.
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