3 IPOs to be first targets of capital gains tax

Casetek, a subsidiary of Pegatron (和碩), will be listed on Jan. 25 at NT$90 per share. Based on its per share book value of NT$10, the company's market capitalization will expand by NT$25.256 billion, representing NT$3.78 billion in capital gains tax obligations for majority shareholders at the tax rate of 15 percent.

The company is one of three major suppliers of metal casings for Apple, which constitutes 75 percent of its revenues. Casetek yielded earnings per share (EPS) of NT$0.47 in 2011, and NT$6.85 for the first three quarters of 2012. Institutional investors estimate that the company's 2012 fourth quarter EPS at NT$3.84.

Cowealth, a supplier of high tech medical analysis equipment in China, will be listed on January 30 at NT$62.8 per share. The company yielded revenues of NT$1.079 billion for the first half of last year, representing a growth of 61.07 percent year-on-year. After tax, income for the company last year was NT$101 million, representing unprecedented growth of 830.51 percent and yielding EPS of NT$2.09.

Eslite Spectrum, an operator of bookstore chains, food and beverage outlets and hotels, is set to be listed Jan. 30 at NT$160 per share. Currently, the company's paid in capital is assessed to be NT$410 million, based on its IPO price of NT$160 per share, the company's market capitalization is expected to reach NT$6.56 billion.

Majority Shareholders Unscathed by New Tax

The stock gains tax was drafted under the so-called fairness principle, and is intended to levy a greater tax burden on the wealthy. However this is not the case for this current wave of IPOs, as majority shareholders will be mostly unaffected by the tax, with smaller-scale individual investors taking the brunt.

In the case of Eslite Spectrum's IPO, the stocks held by majority shareholders will not be taxed, as they were issued last year on the over-the-counter market and not in the upcoming IPO. Furthermore, if shares are held for longer than three years, the tax for the majority shareholders will be set at 3.75 percent, as opposed to the regular 15 percent.

Some have called into question the fairness of the capital gains tax in instances when wealthy majority shareholders are virtually unscathed while small individual investors are subject to the full 15-percent rate if they purchase more than 10 shares in IPOs.

The tax also represents an artificial ceiling for the market, and may compel many individual investors to liquidate and take profits as the index approaches the 8,500-point mark.

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