By Beatriz Marie D. Cruz, Reporter
THE HOUSE Committee on Ways and Means on Tuesday approved a bill that seeks to deepen Philippine capital markets by lowering the tax on stock transactions.
Albay Rep. Jose Ma. Clemente S. Salceda, who also chairs the committee, said the proposed Capital Markets Efficiency Promotion Act is “part of a broader effort to make the country’s capitals markets deeper, more liquid, and more competitive.”
The unnumbered substitute bill seeks to reduce the stock transaction tax to 0.1% from the current 0.6%.
According to Mr. Salceda, the Philippines’ 0.6% stock transaction tax is the highest among Association of Southeast Asian Nations (ASEAN) members.
“Vietnam and Indonesia only impose 0.1% while other neighboring countries exempt the sale of shares of stock. This keeps the Philippine bond and equity markets small relative to our regional peers,” he said.
The lawmaker noted the Philippine Stock Exchange (PSE) has only 283 listed companies, while other stock exchanges in the region have between 425 and 963 listed companies.
“An outright reduction from 0.6% to 0.1% may foster a conducive environment for investments and help domestic corporations raise capital. This will simplify the tax system as the distinction on the tax on trading of domestic shares whether in the local or foreign stock exchange will be removed,” Mr. Salceda said.
PSE President and Chief Executive Officer Ramon S. Monzon said the trading volume would have to increase over three times to compensate for the loss in revenues from the reduction in the stock transaction tax.
“I think we are very confident that this could be met because the increase in volume will not only increase transaction tax, it will increase income tax on the fees charged on stock trading. It will increase taxes on the earnings of brokers and on the earnings of the clearing and other organizations that have to do with the market,” he told the committee.
Mr. Monzon noted that countries like Taiwan and South Korea saw an increase in stock market volumes after reducing the tax on stock transactions.
“We foresee [that] any reduction in such taxes will encourage more participation in the stock market, and thereby add liquidity to our capital markets,” Kelvin Lester K. Lee, commissioner at the Securities and Exchange Commission (SEC), told the committee.
The bill also expands the definition of shares of stock to include options, derivatives, and short selling, as suggested by the PSE.
It also seeks to remove the 7% gross receipts tax on net trading gains by banks and financial institutions, as well as reduce the tax on dividends for nonresident investors to 10% from the current 25%.
“Lower dividend tax rates can encourage cross-border investments and participation in the local capital market by nonresident investors. This increased participation can lead to improved liquidity, depth, and efficiency of the capital market,” Mr. Salceda said in his sponsorship speech.
He said the bill would “help potential listings in the market, including the Maharlika Investment Fund and the proposed listing of shares of the Land Bank of the Philippines.”
Mr. Salceda said the increase in stock market volumes will benefit pension funds, such as the Government Service Insurance System (GSIS) and the Social Security System (SSS).
The panel also removed the proposed debt transaction tax, which was included in the original bill, at the suggestion of the Bankers Association of the Philippines.
Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said removing the tax on debt instruments would make the stock and bond markets both attractive and competitive to investors.
“The proposed debt transaction tax of 0.1% was intended to equalize the tax treatment of debt and equity transactions, as the current stock transaction tax is 0.6%. However, some experts argued that it would discourage investors from buying bonds and increase borrowing costs for the government and corporations,” Mr. Arce said in a Viber message.
China Bank Capital Corp. Managing Director Juan Paolo E. Colet said the government should consider other factors to catch up with other stock markets in the region.
“The tax measures alone may not be enough to catch up with our ASEAN neighbors. There are other important factors, including fundraising costs, company eligibility, speed to market, and regulatory environment,” Mr. Colet said in a Viber chat.
“The proposed tax cuts are expected to improve market liquidity, so that will be a favorable factor when companies assess whether to list shares on the PSE,” he added.