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Major Investors Switch to Hong Kong to Evade Capital Gains Tax

Taipei, Nov. 12, 2012 (CENS)--Due to the effect of the levy of securities transaction gains tax, many major local investors have switched their investments to the Hong Kong bourse, leading to reduction of their share in the trading of Taiwanese stocks by four percentage points since October and increase of overseas stock investments via re-consignment with securities firms, reported foreign securities firms. To enliven local stock trading, some legislators have urged the government to enhance the quota for investments by mainland China's qualified domestic institutional investors (QDII) in Taiwanese stocks and open up intraday trading.

Lai Shih-pao, a legislator of ruling KMT, suggested the government to raise the investment quota for China;s QDII to US$5 billion, up from US$500 million now, and open up intraday trading. The Financial Supervisory Commission (FSC) has planned to raise the investment quota for QDII next year; it originally planned to augment the quota to over US$1 billion.

Chen Yuh-chang, FSC chairperson, appeared to be rather reserved about the opening-up of intraday trading, saying that intraday trading, either in the forms of “selling before buying” or “buying before selling,” would lead to price fluctuation or the risk of defaulted trading. In consideration of market stability, the FSC prefers to gradually lift the restriction on market trading by first allowing offsetting of margin trading and short sales in the same day, according to Chen.

Some securities firms blamed the low trading volume on the local stock market to switch of major stock investors to the Hong Kong market, in order to evade the securities transaction gains tax. They are expected to return to the Taiwanese stock market in the guise of foreign investors next year, thereby evading the securities transaction gains tax.

Legislator Lai Shih-pao reported that major individual investors, with daily trading volume exceeding NT$50 million, accounted for 7.71% of the stock trading in the first quarter this year but the share had dropped to 3.69% during the period from Oct. 1 to Nov. 5. Meanwhile, overseas securities investments by local people via re-consignment with local securities firms jumped from NT$182.7 billion in the first quarter to NT$196.2 billion in the third quarter.
(by Philip Liu)
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