Philippine Exchange Welcomes Proposal Not To Re-introduce Share Tax

by Mary Swire, Tax-News.com, Hong Kong

23 January 2009

The Philippine Stock Exchange (PSE) has welcomed the approval by the House of Representatives Committee on Ways and Means of a bill that will permanently exempt listed shares traded in the Exchange from the burden of the Documentary and Stamp Tax levy (DST).

If successful, the permanent removal of the DST levy has the potential to lure more investors into the Philippines and stimulate market activity.

Mr. Francis Lim, PSE president and chief executive officer, expressed his elation over the support expressed by Congress to the proposed House Bill No. 4900, which is targeted at reducing trading costs for investors in the stock market. When passed into law, this bill will be added to the growing list of market-friendly laws such as the Personal and Equity Retirement Account Act and the Credit Information System Act.

“This is another significant development for our stock market and our investors, both local and foreign which we hope will materialize soonest. We are thankful to our legislators for supporting a proposal to permanently exempt the sale or exchange of traded shares from the DST tax, which is what our investors have long been waiting for,” Mr Lim announced, adding:

“We highly appreciate the urgency that Congress has put in having this bill passed considering that the DST exemption shall be expiring in two months time."

At present, the trading of shares through the exchange is exempted from the DST for a period of five years or until March 2009 as provided under Republic Act No. 9243. Prior to the enactment of this law in March 2004, the secondary trading of shares of stocks was subject to a documentary stamp tax equivalent to 75 centavos for every 200-peso par value of a stock listed at the exchange.

“The proposed bill authored by Aurora Representative Juan Edgardo M. Angara will further spur market activity as this will diminish friction costs of investing in our stock market. We are well aware that high friction costs are a disincentive for investors when they decide to place their money in any market”, Lim continued.

Preliminary studies of the PSE revealed that the re-imposition of DST on the secondary trading of shares of stocks would place an additional burden upon investors equivalent to 0.10% of the value of the shares they trade at the exchange.

The PSE data showed that the average daily value turnover in the exchange jumped from PHP589m (USD12.4m) in 2003 to a record high of PHP5.5bn in 2007.

“Trading activity in the stock market has posted significant increases since 2004 and I think it is no accident that this rise coincided with the suspension of the collection by our government of DST on stock trading,” Mr Lim noted.

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