Cabinet proposes extending bond, bond ETF tax exemption for 10 years

The Executive Yuan approved a draft amendment to the Securities Transaction Tax Act (證券交易稅條例) yesterday that would extend a tax exemption on corporate bonds, financial bonds and passive bond exchange-traded funds (ETFs) for another 10 years, through Dec. 31, 2036, while expanding the exemption to actively managed bond ETFs.

The proposal came amid strong growth in Taiwan’s domestic bond market following the introduction of the exemption in 2017, according to the Taxation Administration.

The outstanding value of corporate and financial bonds totaled NT$4.66 trillion last year, up from NT$2.66 trillion in 2017, while their total trading value reached NT$19.73 trillion, compared with NT$17.23 trillion in 2017, administration data showed.

Ministry of Finance signage outside its building in Taipei is pictured on May 27 last year.

Photo: CNA

Meanwhile, the outstanding value of passive bond ETFs totaled NT$3.02 trillion last year, up from NT$40 billion in 2017, while their total trading value reached NT$2.16 trillion, compared with NT$70 billion in 2017.

The current tax exemption for bonds and passive bond ETFs is set to expire on Dec. 31. The Ministry of Finance said the exemption has helped stimulate Taiwan’s capital market and promote its development.

Under the draft, the exemption for active bond ETFs would take effect on Jan. 1 next year and remain in place through Dec. 31, 2036.

The ministry estimated that the outstanding value of corporate and financial bonds could reach NT$17.96 trillion by 2036, while annual trading value could amount to NT $93.19 trillion.

For bond ETFs, the ministry estimated that their combined value, including passive and active ETFs, could reach NT$12.75 trillion in 2036, while annual trading value could hit NT$7.65 trillion.

The ministry said active bond ETFs were included to ensure tax neutrality between financial products with similar characteristics.

Executive Yuan spokesperson Michelle Lee (李慧芝) said Premier Cho Jung-tai (卓榮泰) believes the amendment will boost asset management activity, support the government’s goal of developing Taiwan into an “Asian asset management center,” and promote the development of the capital market.

Deputy Minister of Finance Chen Yong-sheng (陳勇勝) said the ministry is still assessing the impact on tax revenue, but the extension will benefit companies and the financial industry.

The proposal must pass legislative review before it can become law.