The Executive Yuan today passed a draft amendment to the Securities Transaction Tax Act in order boost the stock market trading volume and generate more tax revenues. The amendment will be sent to the Legislative Yuan for deliberation.
The draft revision is part of a stock market stimulus program, said Premier Jiang Yi-huah. He thanked Minister of the Council for Economic Planning and Development Kuan Chung-ming, Minister without Portfolio Schive Chi, the Ministry of Finance (MOF) and the Financial Supervisory Commission for their hard work in promoting these measures. Jiang directed the MOF to work with legislators of ruling and opposition parties to ensure a quick revision process.
Since the stock markets of Taiwan and Hong Kong have many similarities, such as a relatively high number of individual traders, Taiwan can learn much from Hong Kong's example, said Schive, who served as chairman of the Taiwan Stock Exchange Corp. before joining the government this year.
In Hong Kong, non-investment security transactions are tax-free; in turn, warrant trading accounts for over 25 percent of total trading volume, of which 80 to 85 percent consists of speculative day trading. In Taiwan, however, warrant issuers are subject to a transaction tax rate of 0.3 percent when making trades for hedging purposes, and warrant trading only accounts for about one percent of all transactions.
This revision would reduce warrant issuers' transaction tax rate by two thirds, to 0.1 percent. The lower costs are expected to increase trading so much that the rate cut will actually increase tax revenue, Schive stated. He considers this measure a pilot which could be extended to other taxes on hedging transactions. If these cuts are all successful, they will produce great results, he said.
The MOF said the draft revision is meant to fulfill warrant issuers' need for hedging in order to provide liquidity and risk management. It will also complement another measure that opens day trading to individual investors trading warrants and to brokerages trading for hedging purposes. Decreasing the cost of hedging, which is mandatory for warrant issuers, is expected to increase the market's liquidity and attract more investors.
The revision is summarized as follows:
1. Between warrants' issue and expiration dates, warrant issuers trading through specific hedging accounts shall pay a tax of 0.1 percent on each such transaction. In accordance with Article 11-4 of the Tax Collection Act, this tax cut will remain valid for five years from the effective date of this act. (Article 2-2)
2. In light of Article 2-2, collecting agents or brokerages shall submit transaction details of their hedging accounts to tax collecting authorities for taxation procedures. (Article 3)