PH Equities May Become Uncompetitive Due To Tax Hike
The Tax Reform Acceleration and Inclusion (TRAIN) has imposed a 20% increase in the stock transaction tax. This is forecasted to yield ₱1.7 billion in additional yearly revenue, but the Philippines Stock Exchange (PSE) is worried that it might make local equities less competitive.
According to the PSE president Ramon Monzon, it will lead to a 10-basis point increase in the transaction tax, which translates to a 0.5% to 0.6% increase. It may seem like a small increase, but that increase represents 20% increase from the present one, and thus increasing the friction cost for foreign investors, he said.
Whether losing or gaining in the trade, this will make traders pay an additional 60 basis points, which can be very big for foreign investors who trade in millions of dollars. The existing 0.5% stock transaction tax in the Philippines was already the highest in the region.
“We have to be very conscious of what the other capital markets are doing in the region or even globally. Foreign investors will always go to a place where transaction cost is less. It’s not enough to make money on the trade. If you had the transaction cost, then you become very uncompetitive with other stock exchanges,” he added.
In comparison, the transaction charges for the stocks in our neighboring peers are as follows:
- Malaysia (Bursa Malaysia) – 30 basis points of the transaction in the form of stamp duty.
- Hong Kong (Hong Kong Exchanges) – 10 basis points of the transaction value in the form of stamp duty.
- Vietnam (Ho Chi Minh Exchange) – 10 basis points of gross sale proceeds.
- Indonesia – 10 basis points of the transaction amount. Additional 50 basis points charge for founder shares of companies doing Initial Public Offerings (IPO).
- Singapore – no stock transaction tax.
- Thailand – no stock transaction tax.
The planned increase in the stocks transaction taxes is among the “offsetting” measures included in the TRAIN, as the government sought to lower individual income taxes to boost the net take-home pay of the average Filipino.