By Hamza Hendawi
THE UNCERTAINTY surrounding a government bill to tax stock market capital gains yesterday continued to cast its dark shadow over the infant exchange, just as signs began to emerge of a possible compromise that could win the approval of a majority in the House.
Share prices yesterday ended lower for the fourth session in a row, taking to 66.77 points the losses endured by the all-share index since a four- session skid began last Thursday. Of these, 17.79 points, or 2.42 per cent, were bled yesterday when the index closed at 716.45 on an anaemic volume of £20.11 million.
The government on Monday decided to postpone plans to pass through the House a market capital gains bill in the face of opposition from its own party, Disy, and the opposition Diko and Edek. Ironically, the communist Akel — the main opposition bloc — supports the government’s position.
The bill is also opposed by the powerful Chamber of Commerce and Industry, by brokers and by the association of stock market investors.
The House will now discuss the bill, together with three others related to the market, on Tuesday, December 28.
The brainchild of Finance Minister Takis Klerides, a political novice plucked from a major accountancy firm earlier this year, the controversial bill had threatened to develop into a major tussle between Disy and the government at a time when the party founded by President Glafcos Clerides is trailing Akel in opinion polls.
But Disy boss Nicos Anastassiades, a seasoned and resilient politician with presidential ambitions, appeared to change tack yesterday when signs emerged that the ruling party and the government may be able to meet halfway on a five per cent tax rather than the eight to 10 per cent said to have been proposed by Klerides.
Speaking after a Presidential Palace meeting with President Clerides and the Finance Minister, Anastassiades said: “A small percentage will be helpful.”
The proposed tax will be applied on all profits made in 1999, while a one per cent levy on transactions that is still awaiting approval in the House will come into effect in 2000.
The proposed five per cent tax immediately won the approval of the United Democrats, the party of former president and chief EU negotiator George Vassiliou. Reports yesterday suggested that Akel and Edek were expected to give their support to the five per cent tax if it comes up for a vote on Tuesday.
“This market is too young to be hassled by too many taxes,” said Yiannos Demetriou of CLR, one of the island’s leading brokerages. “But this market also has the strength to rebound once the situation is clarified.”
The cash-starved government is known to have been eyeing the vast profits made on the stock exchange in 1999 with the intention of getting its hands on some of them, if only to narrow a fiscal deficit that is expected to hit six per cent next year.
Market players do not universally reject the idea of a tax on market profits, but they are furious at the way the government had gone about it. They single out the timing of the bill and the lack of reliable information on its details.
“The government must give us a final decision on whether they will introduce taxation or not,” said Yiannos Andronikou of Suphire Stockbrokers.
“Obviously, some investors are just realising their gains, but there are also signs that many investors are getting out while the situation clears.”
Some of the funds fleeing the market, other brokers said, belonged to Cypriots who had kept cash abroad and had brought it back to the island to invest in the market.
“This year has been an exceptional year, but what about the losses people made in previous years on the market?” asked Andronikou, questioning the fairness of the government’s approach. “What this government wants is to stop the market dead in its tracks,” he said.
The tax controversy is the latest of several crises which have beset the Cyprus Stock Exchange this year. These included repeated closures forced by chaos in administrative work, suspensions of brokerages failing to meet deadlines in processing transactions and delays in the issuing of share deeds by listed companies.
