Cabinet Approves Ten-Year Tax Exemption Extension for Bonds and Active ETFs

The Executive Yuan Council today formally passed the draft amendment to Article 2-1 of the Securities Transaction Tax Act. This policy, which has garnered close attention from the financial market and investors, aims to directly extend the suspension period of the securities transaction tax on corporate bonds, financial bonds, and passive bond exchange-traded fund (ETF) beneficiary certificates—all of which were nearing expiration—by another ten years, moving the applicable deadline to December 31, 2025. Furthermore, in light of continuous innovation within the domestic investment trust industry and financial products, this legislative amendment further expands the scope of application to include actively managed bond ETF beneficiary certificates, which have become a new market favorite in recent years, into the category of securities transaction tax exemptions. This demonstrates the government's policy determination to continuously foster the bond market and guide capital toward long-term, stable allocations, while striving to complete the three-reading legislative procedure before the end of this year.

Reviewing the historical background of this tax incentive, in order to vitalize the domestic bond market and reduce issuance and transaction costs, the Legislative Yuan previously passed amendments to the Securities Transaction Tax Act to suspend the securities transaction tax on corporate bonds and financial bonds starting in 2011. Subsequently, during the 2017 amendments, bond ETFs were also included in the exemption scope, with the implementation period set at ten years, slated to expire at the end of this year. Over the past period, the tax-exemption policy has played a catalytic role in the cultivation and development of Taiwan's bond market. It has not only substantially reduced transaction friction costs for institutional legal entities and retail investors allocating fixed-income products, but has also driven explosive growth in the scale of domestic bond ETFs in recent years, attracting a massive influx of private capital and establishing Taiwan as an important hub in the Asian bond market.

However, as financial markets change rapidly, financial products are no longer limited to traditional passively tracked index formats. In recent years, active ETFs have sparked a wave across global financial markets, and domestic regulators and financial institutions have actively promoted the localization of active ETFs. The primary characteristic of active ETFs is that they are managed by professional fund managers through active stock- or bond-selection operations to strive for returns that outperform the broader market. The addition of active bond ETFs will undoubtedly inject more diverse vitality and professional management momentum into Taiwan's bond market. While reviewing the continuity of existing tax incentives, the Executive Yuan demonstrated a high degree of forward-looking vision and regulatory flexibility by proactively including active bond ETFs under the umbrella of securities transaction tax exemptions. This eliminates market concerns regarding tax unfairness between new and old products, ensures that various bond fund products compete on a fair starting line, and provides substantial benefits for promoting Taiwan as an Asia-Pacific asset management center.

From a macro-level perspective of economic and financial development, extending the suspension of securities transaction tax on bonds and bond ETFs for ten years and expanding its scope to include active products carries profound significance for the sound development of Taiwan's capital market. Taiwan possesses a vast amount of private idle capital and a high savings rate; how to effectively guide these funds toward fixed-income products with stable returns and solid economic backing has consistently been a core issue for financial and economic authorities. The continued exemption of the securities transaction tax substantially lowers holding and adjustment costs for investors, enhances public willingness to invest in bonds, and consequently assists enterprises in raising long-term operational or transformation funds through the issuance of corporate bonds, thereby reducing excessive reliance on single-bank financing and strengthening the financial resilience of the overall industry. At the same time, this helps deepen the depth and breadth of the domestic bond market while elevating the international visibility and attractiveness of Taiwan's capital market.

Following the final decision by the Executive Yuan Council, this draft amendment will be submitted to the Legislative Yuan for deliberation. Given that political parties across the pan-blue and pan-green spectrum generally hold a positive consensus on fostering the capital market, reducing the burden on investors, and promoting financial innovation, coupled with the fact that current regulations are set to expire at the end of the year—meaning that failure to complete the amendments on schedule would inflict significant tax shocks and uncertainty on the bond market—the Executive Yuan has listed this bill as a priority measure. It is striving to successfully complete the three-reading procedure before the end of this year to ensure a seamless transition of the tax incentives. This not only demonstrates the government's administrative efficiency in maintaining the stability and prosperity of the financial market, but also lays a solid and competitive regulatory and tax foundation for Taiwan as it welcomes the arrival of the active bond ETF era.

(Source: Central News Agency)