Investors unlikely to exit Taiwan after new tax

TAIPEI, April 13 Fri Apr 13, 2012 1:27am EDT

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TAIPEI, April 13 (Reuters) - Taiwan's introduction of a capital gains tax will probably not drive investors away from the stock market, though it might reduce turnover as the new tax promotes longer-term investment, some fund managers said on Friday.

The government revealed its plan on Thursday to tax capital gains on shares and futures trading, but stressed that foreign investors who do not have permanent offices on the island will be exempted from the new levy.

Foreign investors account for one-third of trading in the island's market, which is heavily weighed to tech companies such as TSMC, the world's biggest contract microchip maker, which are highly sought after for regional and global portfolios.

"The scope of the tax is a bit bigger than expected. Having said that, the tax's impact has mostly been priced in the market's fall earlier in April," said Alex Hu, propriety trading chief of Mega Securities.

"Foreign investors would be barely affected by the tax, while local investors would be hit a little bit. Those to be hit hardest are individual investors who make big money on stocks and futures," he said.

The new tax, which sets a 20 percent rate for some individual investors and a 12 perent rate for local institutional investors, will take effect in 2013.

"We look at returns. We don't stop investing because of a tax," said Yu Reming, chief investment officer of Prudential Financial' s fund arm in Taiwan.

Oscar Chung, who manages over T$10 billion ($340 million) for Capital Asset Management, agreed.

"We will not adjust our strategy due to the tax," he said. "The tax will knock off a portion of profits to be made by investors, but it does not change corporate earnings prospects."

Taiwan stocks rose 1.4 percent on Friday to trade at 7,772.09, their highest intraday level in almost two weeks. TSMC was up nearly 3 percent.

So far in 2012, the market is up about 10 percent, slightly lagging the MSCI ex-Japan index.

Doubts over whether the tax would be implemented and how big its scope had weighed on the market and made it one of Asia's worst performers this month.

Investors who hold stocks for over five years will be taxed on half of their trading gains, promoting longer-term investments. But that also could reduce market turnover in the long run, according to a research report published by Deutsch Bank. (Reporting by Clare Jim and Faith Hung; Editing by Kim Coghill)

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