PSE hails scrapping of higher capital gains tax

The Philippine Stock Exchange (PSE) hailed the Bureau of Internal Revenue’s decision to scrap the implementation of the 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.

At present, a capital gain tax of one-half of one percent of the stock transaction is imposed on block sales or pre-negotiated transactions.

"We laud the Bureau of Internal Revenue (BIR) for this act, which will definitely help in our efforts to develop the capital market by attracting more direct investments into the country since a higher transaction cost goes against the national goal of promoting the domestic capital market," PSE president and chief executive officer Francis Lim said.

"This development is the fruit of a dialogue between the BIR and the PSE. Mutual cooperation thus should always exist between the government and the private sector," Lim further said.

Lim 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 explained the imposition of capital gains tax on block sales will turn off investors from transacting in the exchange given the higher transaction cost and will instead invest in other markets overseas.

The PSE chief noted that in the recommendation report prepared by Wilshire Associates for the California Public Employees’ Retirement System (CalPERS), the Philippine stock market has always been regarded as one of those having the highest transaction cost.

"If the BIR did not lift the tax on block sales, 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.

"High taxes add to transaction costs and discourage investment in the capital market particularly when taxes on such investments are disproportionate vis-à-vis competing instruments, or where the cost of tax outweighs the gain of the transaction," Lim added.