Business tax proposal sends stocks tumbling
February 25, 2014, 12:51 am TWN
TAIPEI -- Shares in Taiwan lost ground Monday, pulled down by financial stocks after the government floated the possibility of raising the business tax rate on financial institutions as part of a fiscal reform package to help narrow the country's fiscal deficit.
The market opened slightly higher before it weakened as financial stocks drifted lower.
The weighted index on the Taiwan Stock Exchange ended down 41.25 points, or 0.47 percent, at 8,560.61 after moving between 8,541.65 and 8,612.21 on turnover of NT$85.36 billion (US$2.81 billion).
The market's financial sub-index fell 1.69 percent, the biggest fall of any category on Monday, with Taiwan's two biggest financial holding companies, Cathay Financial Holding Co. (國泰金控) and Fubon Financial Holding Co. (富邦金控), losing considerable ground.
Cathay Financial Holdings fell 3.04 percent to NT$44.70 and Fubon Financial Holdings lost 2.53 percent to NT$42.30 on concerns over the losses they could suffer it the government goes through with the plan outlined by Premier Jiang Yi-hua on Friday.
According to Financial Supervisory Commission estimates, if the business tax rate on financial services is raised by 1 percentage point from the current 2-percent tax rate, banks will pay an additional NT$9 billion in taxes.
If the rate goes up by 3 percentage points, banks will pay nearly NT$30 billion more to the government.
Because the tax rate is calculated on a financial institution's gross receipts, any tax increase would likely affect larger rather than smaller banks, dealers said.
One dealer said the five banks that would be most adversely affected by a higher business tax rate would be Fubon Bank, Cathay United Bank, First Bank, Taiwan Cooperative Bank and CTBC Bank.
Kent Liu, a fund manager at Taishin Securities Investment Trust Co. (台新投信), said that beyond the unfavorable news of the planned tax hikes, the market's slump Monday was also caused by a technical correction following the steady gains made in recent sessions.
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