The Ministry of Finance of Taiwan is pressing ahead with plans to amend the Government Bond Law so that the government can raise additional funds to support its domestic expansion program. The proposals now await approval from the Executive Yuan, Taiwan's main administrative body.
The government targeted at the beginning of 2001 to raise between NT$120 billion ($3.6 billion) and NT$135 billion in additional funds from the bond market. At the time it was unable to do so because it is limited by a law that only allows debt issues to make up 15% of its total spending.
Although it has not been decided whether the restriction will be raised, the law will be changed so that borrowings which go towards repaying existing debt will not be included in the 15% limit.
That will enable the government to use any new debt issue to go towards a public projects program of NT$500 billion.
It could have a secondary benefit in increasing liquidity to the domestic bond market, something the government has been making positive noises about recently.
The cabinet recently approved measures to scrap the 0.1% transaction tax imposed on corporate bond issues and bank debentures for the next 10 years, as well as cutting the trading tax on corporate bonds.
However, though some market players agree that any tax cut is a good thing, they also believe that this doesn't really address the main issue holding back the local bond market, namely the 20% withholding tax which gets passed along to investors, lowering absolute yields and the attractiveness of buying corporate bonds.
"That's a real problem, because it's hard to find institutional investors, particularly foreign investors, who will buy when there is this restriction," argues one local banker. "Fund managers and insurance companies are cautious enough in buying paper and they need more value than they are currently getting."
