Capital-gains tax threatens Greek stocks, regulator says

The rally in Greek shares that has pushed the ASE Index to a 16-month high may be threatened by plans to introduce a capital-gains tax on equities to help narrow the budget deficit, regulators and investor groups said.

“We have had discussions with the ministry insisting that, in this period, it is counterproductive to have both a capital- gains tax and the already existing tax on the stock exchange,” Constantinos Botopoulos, chairman of the Hellenic Capital Markets Commission, which regulates the stock exchange, said in a telephone interview.

Equities will be subject to a 20 percent levy on gains in capital in addition to an existing 0.2 percent financial- transaction tariff from April 1, if parliament approves the measures in a vote expected to be held tomorrow. Greece’s international creditors have demanded 2.5 billion euros ($3.3 billion) of additional taxes in 2013 on top of 9 billion euros of spending cuts as conditions for releasing bailout funds.

The proposals risk stalling the ASE’s 107 percent rebound from June’s two-decade low, Kimon Volikas, president of the Hellenic Fund and Asset Management Association, said. The benchmark gauge for Greek shares rose 0.4 percent to 983.91 yesterday, the highest level since Aug. 29, 2011.

“Capital-gains taxation is something that happens all over the world, it’s not something new,” Volikas said. “But we are in a different phase of our economic evolution compared to other countries. What we need is to motivate investment. The timing is completely wrong.”

In the US, investors face taxes of as much as 23.8 percent on long-term capital gains, depending on their income. The UK has a top rate of 28 percent.

Greece’s capital-gains duties may be postponed due to opposition from investor groups, reported Wednesday, without citing anyone. The finance ministry will examine alternative proposals ahead of another tax bill expected to be introduced in the next few months, the Greek website said. The tax has been repeatedly delayed since it was proposed in 2007.

Surging borrowing costs forced Greece to accept two bailouts from the European Union and International Monetary Fund. Budget cuts imposed by the rescue deal have helped drive the country into the worst recession since World War II.

According to the latest review of Greece’s economic adjustment program by the European Commission, the country’s deficit is estimated to be 4.6 percent of gross domestic product in 2013. The economy is forecast to contract 4.2 percent, followed by growth of 0.6 percent in 2014, the Commission data show. [Bloomberg]