Despite the Cabinet’s announcement late on Wednesday night that it would halve the securities transaction tax, the TAIEX plunged 206.06 points, or 3.19 percent, to close at 6,251.95 yesterday, as investors voiced doubts that the measure could revitalize the equity market.
Turnover was relatively light at NT$854.55 billion (US$2.73 billion), adding uncertainty to the Cabinet’s hope that the state coffers may benefit from more active stock trading despite the planned tax cut.
The Cabinet said it would seek approval from the legislature to lower the levy from the current 0.3 percent to 0.15 percent for six months to revitalize the market. This measure is expected to cost the national treasury NT$30 billion.
“It is not fair to brand the tax cut plan a failure,” Vice Minister of Finance Chang Sheng-ho (張盛和) told reporters. “Let’s wait a little longer before passing judgment.”
“Investors must have confidence in the economy, which remains fundamentally sound despite the global slowdown,” he said.
Chang blamed foreign institutional investors for the stock market slump, saying they had been pulling funds from the local bourse and other major Asian markets to take advantage of the US dollar’s rise to cash in their holdings.
Foreign fund managers sold about NT$11.06 billion in local shares, Taiwan Stock Exchange data showed.
Market analysts disagreed with Chang.
Alan Tseng (曾炎裕), an analyst at Capital Securities Corp (群益證券), said the planned tax cut would have little impact on the stock market and that foreign institutional investors would go ahead and sell even if the government scrapped the levy altogether.
“The tax cut will prove futile,” Tseng said by telephone. “Foreign investors will favor the US currency over equity as long as the financial market remains weak and the greenback keeps advancing.”
If the trend persists, Tseng predicted that the TAIEX would trend further downward unless the government intervened to halt the decline of the local currency, which closed at NT$32.04 against the greenback yesterday — its lowest in seven months.
Winson Wang (王榮旭), an analyst at Marbo Securities Consultant Co (萬寶證券投顧), said the tax cut came too late and in a wavering manner.
Wang said the government had been wishy-washy about the tax cut before reaching a decision on Wednesday night, deepening the impression it was at a loss about how to fix the economy.
“The government’s lack of resolution in the decision-making process served to diminish its effort to restore investor confidence,” Wang said in a telephone interview.
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