Scrapping of IPO taxes urged

The government should scrap the taxes imposed on  companies that go public to further spur the growth of  the local equities market, the Capital Market  Development Council (CMDC) said in a recent study.

According to CMDC, the removal of the tax on initial public offerings (IPOs) and the documentary stamp tax (DST) imposed on stock transactions will encourage more investors to park their funds at the local bourse.

“Initial public offerings should be encouraged since greater public stock interest in a corporation means greater scrutiny of corporate affairs resulting in greater corporate responsibility. A tax on IPOs, however, acts more as a deterrent to IPOs because it is a tax on capital and not on income,” according to the study conducted by former Socioeconomic Planning Secretary Felipe Medalla.

The CMDC study recommended the removal of the tax on IPOs and the permanent exemption from DST of the sale and exchange of stocks listed at the Philippine Stock Exchange.

The study noted that the Philippines has a higher transaction cost for transfer of shares compared to Hong Kong, Thailand and Singapore.

This, Medalla said, has resulted to fewer IPOs and lower volume of transactions at the PSE.

“Because of the high transaction costs, i.e. the initial public offering tax, the volume of  transactions in the Philippine Stock Exchange has not improved. The conclusion is therefore that in the absence of any movement in stock exchange transactions, any suspension or abolition of IPO taxes would improve stock exchange conditions at little revenue loss,” Medalla said in the study.

Equity raised by listed companies via various capital-raising activities rose to P34.8 billion from January to May this year or 41.5 percent higher than the P24.63 billion posted in the same period last year, data from the PSE showed.

Proceeds from the IPOs alone amounted to P2.92 billion during the five-month period or 67.8 percent lower than the P9.09-billion level chalked up a year ago.

Proceeds from private placements went down to just P80.47 million from P4.3 billion a year ago.

Equity from stock rights offerings reached P15.2 billion from January to May this year, roughly 20 times bigger than the P751.96-million level recorded for the same period last year.

As for the DST exemption, Medalla recommended that this should be permanent for the sale, barter or exchange of stocks listed in the local bourse.

CMDC made the study to help develop the domestic capital market which has been lagging behind its counterparts in the region.

The Department of Finance (DOF) said it is committed to push for reforms in the local capital market when the 14th Congress opens this month.

The agency said the development of the domestic capital market would help attract investments particularly in much needed infrastructure projects as well as improve the low investment rate in the country.