Official statements on Tuesday about the increasing of tax on gains made from share transactions from 1% to 10% caused panic on the Bucharest Stock Exchange yesterday owing to the absence of a clear explanation as to how the tax would be levied.
Many investors rushed to dump shares at prices much lower than the day before for fear of seeing the profits generated in previous years being subject to 10% tax.
The Bucharest Stock Exchange opened 10% down on the previous day and continued to fall after a short rally, with many listed shares falling 15% in the first part of the day - the biggest decline allowed for one day of trading. Clarifications by the Ministry of Finance, which came right at the end of the day, caused a slight rebound in prices.
Nervous brokers were saying yesterday that the government should have realised that the manner in which the announcement of the tax hike was made and the lack of clarity that ensued after the initial announcement were bound to cause panic among investors, particularly because many members of the government are capital market investors themselves.
"This is the first big mistake the current government has made. It is not normal to issue releases about a tenfold increase in tax without explaining how it is to be applied, particularly since some members of the new government are experienced in dealing with the capital market and are aware how panic can spread among stock market investors," said Octavian Molnar, head of IFB Finwest brokerage firm.
The manager of the Stock Exchange, Stere Farmache, believes yesterday's slump in prices was only natural considering the information available on the market.
"It was a normal response from the market because it is natural that investors try to protect themselves if they feel they are about to lose 10% of their gains," said Stere Farmache. He added that the market recovered somewhat on learning that the 10% tax would apply only to gains made after April 1.
Shortly before the market closed a release by the Ministry of Finance helped put investors' minds at rest by clarifying that the new level of tax would only apply to gains made after April 1. The remaining time of around 30 minutes was sufficient for prices to recover by more than 5%, helping to reduce the losses incurred by investors during the day.
"The system for calculating remains as it has been until now when gains were taxed at 1% tax. If I enter the market before March 31 and sell after April 1 and make a profit out of this, then the tax is 1% for the growth between my entry date and the March 31 closing price and it is 10% for the remainder of the gains made after April 1, " Finance Minister Ionut Popescu told Ziarul Financiar.
vlad.nicolaescu@zf.ro ; razvan.voican@zf.ro
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