TASE Head Calls on Gov’t to Slash Capital Gains Tax

New chief of the TA exchange says reducing tax from 25 to 10% would lure many more to sagging equity market

A digital ticker shows financial information outside the entrance to the Tel Aviv Stock Exchange, August 4, 2016.
Rina Castelnuovo, Bloomberg

The new head of Israel’s stock exchange called on the government to lower the country’s capital gains tax from the present 25 percent, to encourage more investment from the public.

“We think 25 percent for private investors is too high,” Itai Ben-Zeev, the chief executive of the Tel Aviv Stock Exchange (TASE), told Reuters after a news conference on Tuesday.

“If it goes from 25 to 10 percent, immediately you will see a shift of people coming to the equity market.”

Israel’s Finance Ministry said it was studying the issue.

The TASE has seen trading volumes and company listings drop in recent years. Volumes are down 40% since MCSI upgraded Israel to developed-market status in 2010, Bloomberg noted.

Ben-Zeev partly blamed the capital gains tax, which he said encouraged the public to invest in other assets such as real estate, where landlords pay minimal tax on rental income. Israeli home prices have more than doubled since 2007.

Sluggish trading has pushed local money managers to invest much of their portfolios abroad, Ben-Zeev said, according to Bloomberg. Furthermore, many companies have delisted in order to avoid regulation. Many high-tech companies choose to raise money through VC or on foreign exchanges for the same reason, he said, according to Bloomberg.

Securities regulator Shmuel Hauser last year blamed some of the exchange’s woes on an anti-business environment in Israel and hefty regulations the agency is in the process of easing.

“We have had more IPOs in the first quarter than we had in the entire previous year and we have a pipeline for more IPOs and new debt offerings,” Ben-Zeev said.

So far in 2017, five initial public offerings have been made, totaling some $400 million, versus three in all of 2016. Daily trading volume has risen to 1.6 billion shekels ($439 million) on average, from 1.3 billion daily last year.

“We definitely feel the sentiment has changed,” said Ben-Zeev. “We hear it from underwriters and companies.”

In his first news conference since taking office at the start of 2017, Ben-Zeev outlined a plan to further boost the market. It included striving for the privatization of as many as 15 state-owned companies through the stock exchange with a combined market value of about 15 billion shekels.

They include two of Israel’s ports, the post office, water company, three defense contractors and electricity utility Israel Electric.

Ben-Zeev also wants to bring about 90 Israeli companies that are traded abroad to list in Tel Aviv as well as hundreds of small and medium-size firms and high-tech growth companies. He is also seeking to boost liquidity by enabling banks to become market makers in stocks, a move that requires approval from the supervisor of banks.

Ben-Zeev is also calling for reduced regulation to encourage local institutional investment in Israeli stocks, and introducing the securitization of loans such as mortgages, Bloomberg reported.