PSE hails suspension of higher capital gains tax

The Philippine Stock Exchange (PSE) hailed yesterday the suspension of the implementation of a tax measure imposing a higher capital gains tax of five percent or 10 percent on block sales or pre-negotiated transactions executed in the bourse.

The suspension effectively reverts the capital gains tax back to 1/2 of one percent (0.05 percent) of the stock transaction, block sales or pre-negotiated transactions.

"We thank the Bureau of Internal Revenue led by OIC (Jose Mario) Buñag for seeing the light and understanding that a higher transaction cost goes against the national goal of promoting the domestic capital market," said PSE president and chief executive officer Francis Lim.

He said this is the same reason behind the five-year exemption from payment of documentary stamp taxes on trade transactions in the PSE enacted in 2004.

"Government has always been one with capital market players in our efforts to boost liquidity in the stock market through a lower transaction cost and one evidence of this is the suspension of DST in secondary trading last year," Lim said.

Lim said the imposition of capital gains tax on block sales will put off investors from transacting in the exchange given the higher transaction cost and will instead opt for doing business outside the stock market.

"In the recommendations report prepared by Wilshire Associates for the California Public Employees‚ Retirement System (CALpers), the Philippine stock market is always listed as one of those having the highest transaction cost," Lim noted.

Apart from the stock transaction tax, investors in the stock market are currently charged 0.007 percent gross receipt tax; 0.000917 percent Philippine Depository and Trust Corp. charge; 0.05 percent sales tax; and 0.0009174 percent Securities Clearing Corp. fee.

The standard fees also include brokerage commission of a maximum of 1.5 percent of the transaction cost plus 10-percent value added tax (VAT), a transfer fee of P100 plus 10-percent VAT, and a cancellation fee of P20 plus 10-percent VAT.

"The inevitable result will be for investors to opt out of the stock market, thereby defeating the basic policy of our government to develop an active and vibrant capital market," Lim said.