MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said there is a need to strike a balance in guarding the country’s fiscal position as well as the development of a competitive and efficient capital markets.
BSP Governor Amando Tetangco Jr. told members of the Capital Market Development Council (CMDC) there is a need for the legislative process to find a solution and at the same time avoid tax arbitrage.
“Tax reform is always going to be a slippery slope. We recognize the need for the State to define and manage its fiscal position. We also believe that financial choices must be based on the intrinsic value of the products rather than on the friction costs that arise from one transaction to another. Thus, what is needed is to strike a balance between fiscal and developmental initiatives,” Tetangco said.
The CMDC has for several years been pushing for the harmonization of the differential tax treatment on similar or easily substitutable financial products or instruments.
The council believes the financial market is not tax-neutral due to various tax laws and incentives issued in the past that have contributed to a situation wherein taxation has become a competitive factor in the investment decision process.
Tetangco pointed out the Philippines should be unrelenting in upgrading the financial infrastructure to ensure competitive and efficient markets, enhance market discipline and protect investors.
He explained analysts refer to the Philippines as a bank-centric market as the bulk of financing emanating from banks rather than the capital market.
The country has 262 publicly-listed companies in the equities market with a market capitalization of $279.5 billion, while the average for the rest of Association of Southeast Asian Nation (Asean) is 612 listed companies with a market capitalization of $406.9 billion.
Likewise, the turnover ratio of government bonds in the securities market in the Philippines is reported to be 0.49 lower than the 0.69 average for the rest of the Asean.
“The lower trading activity could be attributed to several factors. The net effect however is that we have less liquidity in the secondary market and with that comes our challenges with benchmarks,” Tetangco said.