Legislator pushes to increase bank sales tax to 5%

By John Liu,The China Post

TAIPEI, Taiwan — Legislators of the Finance Committee paid an inspection visit to the Taiwan Stock Exchange Corporation (TWSE) yesterday, and proposed a 3-percent increase to the bank sales tax. Kuomintang Legislator Liao Cheng-ching proposed an amendment yesterday that would increase the bank sales tax rate, currently set at 2 percent, to 5 percent. This proposal has been endorsed by 58 legislators — almost half of the Legislature — and drew much attention yesterday. Financial Supervisory Commission (FSC) Chairman Chen Yuh-chang said that although financial institutions in Taiwan made more profits this year than previous years, their average Return on Asset (ROA) and Return on Equity (ROE) have been lower than those in other countries, and that one should investigate the government’s financial problems comprehensively, instead of focusing on a specific industry. The ROA for domestic banks has been averaging about 0.6 percent, while international banks have been averaging about 1 percent. The ROE for domestic banks has averaged about 9 percent — less than the 15-percent average for international banks. The bank sales tax was initially set at 5 percent, but was decreased to 2 percent during the 2008 financial crisis. The tax goes toward the financial reconstruction and stabilization fund, which has so far accumulated NT$200 billion, and has yet reached the goal of NT$300 billion, Chen said.

Chen, who suggested he does not support the proposal, said that with a higher tax banks may increase the cost of loans for businesses. This would be against the interests of businesses. Taiwan is the only country in the world with a bank sales tax and Chen believes it is not congruent with the international financial system. Banks made huge profit in 2012, and the current nonperforming loans ratio is below 0.5 percent, Legislator Lo Ming-tsai said, adding that the bank sales tax was lowered from 5 percent to 2 percent to assist struggling banks. “Now that banks are making big money, who else should we turn to?” Lo asked. TWSE Chairman Lee Sush-der was also questioned by Finance Committee legislators regarding the connection between the capital gains tax and the decreased stock trading volume in the first quarter. “The capital gains tax system may be reviewed, and the TWSE has been studying the relation between trading price and volume and the change in investor demographics. The TWSE has to cooperate with the Finance Ministry’s policies and will work very hard in the future to improve the tax system.” Lee said. Regarding the recent lower-than-expected trading price and volume on the stock market, Lee said that “there are many internal and external factors to consider,” although capital gains tax is one of them.