Exemption of mutual firms from docu stamp tax sought

The Philippine Stock Exchange wants mutual fund firms to first list at the exchange to qualify for exemption from the payment of the documentary stamp tax (DST).

The PSE proposal is part of efforts to expand the financial products available to the investing public and to develop the mutual fund industry which has lagged behind neighboring Asian countries.

This was broached by the PSE following reports that the Department of Finance is open to abolishing the DST on stock transactions since the losses would hardly make a ripple in the government’s coffer.

At present, a DST of P2 is collected for every issuance of shares worth P200.

According to the Investment Company Act (ICAP), the umbrella organization of the country’s mutual fund firms, the DST of P2 on every issuance of shares is burdensome as it results in unnecessary expenses on the part of mutual funds and a reduction in the yield to investors.

Mutual fund companies are required to redeem their shares at net asset value per share (NAVPS) upon the request of shareholders. The redeemed shares are then cancelled and resold as original issues. Each time it does so, the fund again must pay the P2 DST.

ICAP said this also causes a substantial decline in the NAVPs (net asset value per share) when a big investor puts money into the mutual fund, thereby diluting the earnings of the small investor.

Securities and Exchange Commission Chairperson Lilia R. Bautista, however, is not too keen on the PSE proposal, saying the market has yet to recover from its slump.

"The public float is so slim. I realize why the PSE is encouraging mutual fund firms to list. Pushing mutual fund firms to list at this time may not be in the right direction…," Bautista said.

Mutual funds bring together multiple investors to form pools of investible funds that afford individual stockholders the same economical access to capital markets as larger and wealthy investors.

The funds may be invested in debt securities/bond issues, equities or a combination of both depending on market conditions.

The PSE is currently studying the marketing and possible listing of more mutual funds which at present is limited to the locally-listed Filipino Fund Inc. and the New York-traded First Philippine Fund.

PSE president Ernest Leung earlier said Sun Life Asset Management Co. Inc., a unit of the listed insurance giant Sun Life of Canada, has manifested its interest in marketing mutual funds through the exchange. This will be coursed through the trading participants initially as distributors of mutual funds and ultimately as traders upon listing with the exchange.

Leung said this will provide another source of income to the brokers through distribution fees or trading commissions. Brokers, however, will first need to pass an examination and obtain a license from the SEC before they can enter into a distribution agreement with the mutual fund company to sell and offer the mutual funds to clients.

At present, the PSE deals only in a limited number of securities which include common stocks, preferred stocks, warrants, depository receipts, small-denominated Treasury bonds and Treasury bills.