A newly proposed capital gains tax by Taiwan's finance minister
may put pressure on the Taiwanese stock market (
) leading to opportunity for long term value investors.
[caption id="attachment_56078" align="alignright" width="220"
caption="101 Building in Taipei, Taiwan"]
The government had claimed earlier in the week that
discussions pertaining to a tax increase were mostly academic and
that it was only trying to discern public opinion on the
According to the
, the new program would
levy a flat tax
on domestic retail investors at a rate of 20% if an investor earned
more than T$3m ($2,632) in annual profits in stocks and futures.
There are also provisions for deducting losses and lower rates for
long term capital gains.
The implementation of capital gains taxes in Taiwan is never an
easy prospect. A proposal to increase taxes in 1988 sent the
Taiwanese market down for 19 consecutive days
. Fears that a similar pattern could emerge may soon weigh on the
Long-term investors should treat any pullback related to the new
capital gains tax in the TAIEX as a buying opportunity in EWT.
While this could pose some problems for the exchange in the
short-term, an additional capital gains tax would have little
relevance on the fundamental macroeconomic thesis driving the
the smartphone boom
Further, this capital gains tax does not affect foreign
institutional investors, such as iShares which runs EWT.
EWT is up on the day, but could see pressure over the next few
weeks if the capital gains proposal is ratified by the Taiwanese