Tax Fears Prompt Sell Off In Tokyo

by Mary Swire, Tax-News.com, Hong Kong

21 November 2006

The Tokyo Stock Exchange said last week that uncertainty surrounding the future of certain tax breaks on securities was one of the reasons behind recent declines in the value of shares traded on the bourse.

Addressing reporters at the National Press Club in Tokyo yesterday, TSE President Taizo Nishimuro said that concerns by individual domestic investors that the government will let the temporary tax breaks expire were also filtering through to foreign investors.

The benchmark Nikkei 225 reached its lowest level in two months after yesterday's close.

"Because they think that the outlook for share prices is dark, foreign shareholders have in recent days turned from net buyers to net sellers," he stated.

On a more optimistic note for investors in the Japanese markets, Nishimuro predicted that concern over tax breaks would only be temporary.

The government had introduced a cut in capital gains on share and mutual fund gains to 10% from 20%, and also cut tax on dividends. However, the capital gains tax measure is due to expire at the end of 2007, while the dividend tax cut will expire by the end of 2008, and investors fear that the government's determination to raise its revenue take to tackle mounting budget and debt problems will mean that the tax breaks will not be renewed.

By the end of Monday's trading, the Nikkei had fallen 365.79 points, or 2.27%, to finish at 15,725.94 points - the lowest closing since September 26. Meanwhile, the broader Topix index fell 39.60 points, or 2.52%, to 1,533.94 points.

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