August 24th, 2023
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) has filed House Bill No. 8958 or the Capital Markets Efficiency Promotion Act, which amends the Tax Code to reduce taxes on stock transactions from 0.6% to just 0.1% of stock value and the tax on dividends of foreign non-residents from 25% to 10%. The proposal also imposes a tax on debt instruments of 0.1%, in parity with the reduced rate for stock transactions.
This, Salceda said, was upon President Marcos’s instruction to enact measures to boost the capital markets, including the proposed tax adjustments by Salceda’s bill.
“I am pushing for the bill at the President’s instruction. The bill is part of an entire package of both legislative and administrative reforms discussed during a meeting between the Office of the Presidential Adviser for Investment and Economic Affairs and relevant stakeholders, including the Department of Finance, the Securities and Exchange Commission, the Bureau of Internal Revenue, and the Philippine Stock Exchange on their recommendations for improving the overall liquidity of the Philippine Stock Market,” Salceda said.
Salceda adds that he is filing the measure “so that the discussion can be simpler and faster than the Passive Income and Financial Intermediaries Taxation Act or PIFITA, which might be too comprehensive and broad-ranging that time might not be on our side.”
Salceda’s proposal involves the reduction of the stock transaction tax from 0.6% to 0.1%; the imposition of the debt transaction tax of 0.1%, except for government securities; and the reduction of the dividends tax to non-resident aliens from 25% to 10% to harmonize the cash and property dividends rate.
Salceda says that the stock transaction tax, the highest in ASEAN, is driving up transaction costs in the stock market, resulting in a slow-moving stock market with few participants.
“The Philippine Stock Exchange has the fewest listed companies of all ASEAN-6 economies, with just 275 listed companies, with the second lowest already being Singapore, with some 640 listed companies. Since the stock transaction tax was increased from 0.5% to 0.6% of transaction value, in 2019, the PSEi has declined by 29.83%.”
“This is bad for the country’s pension and health insurance systems, because the Social Security System and the Philippine Health Insurance Corporation charters have strict investment policies that limit their equities exposure almost exclusively to Philippine index stocks. If stocks don’t move in value, these funds also stagnate.”
Salceda adds that “The high rate of tax on dividends received by foreign non-resident individuals also foreign discourages foreign investors from buying of Philippine stocks, which, in turn, prevents price discovery. As a result, Philippine stocks stagnate in value. In fact, monthly transaction volume continues to be lower than 2012 levels in peso terms. In dollar terms, it matches 2007 levels.”
Salceda said that while the reform “will result in a revenue loss of P9.825 billion, it could increase pension assets in the SSS and GSIS alone by at least P72.9 billion.”
Salceda said that the House tax panel will discuss the measure “once the budget is approved on the floor, at the latest.”