By Arra B. Francia, Reporter
FOREIGN INVESTORS may lose their interest in the Philippine Stock Exchange (PSE) once it raises stock transaction taxes (STT) in 2018 as part of the first package of the government’s tax reform program due for implementation in the first quarter.
PSE President Ramon S. Monzon explained the 20% increase in STT — from 50 basis points (bps) to 60bps of the gross selling price — would make the local bourse less competitive against other markets in Asia.
“We have to be conscious about what the other capital markets are doing in the region, or even globally. Because the foreign investors will always go to a place where the transaction costs are less because it’s hard enough to make money on a trade. But if you add the transaction cost, we become very uncompetitive (compared) to the other stock exchanges,” Mr. Monzon told reporters in Makati late Wednesday.
The increased STT forms part of the first package of the Tax Reform for Acceleration and Inclusion (TRAIN), which Congress ratified on Wednesday evening. The tax measure would still need President Rodrigo R. Duterte’s signature before becoming a law.
The adjusted taxation scheme aims to collect up to P130 billion more revenues for the country, in order to finance the Duterte administration’s massive infrastructure program that would see over P8 trillion in spending for roads, railways, and airports, among others, in the next six years.
Mr. Monzon noted the Philippine tax imposed on stock transactions is already the highest in the region, followed by the Burma Malaysia Exchange with a tax of 30 bps of the transaction value. The Hong Kong Exchange charges a stamp duty of 10bps of the transaction value, while the Singapore Exchange has none.
“We really compete with the other exchanges like Thailand, Malaysia, Indonesia, Vietnam. We compete for the money of the foreign investors. So when you increase STT, you are increasing the friction cost. As it is right now, before the increase, that 50bps STT was already the highest in the whole region,” the PSE president said.
He added this could further impact the trading volume in the PSE, which remains at the same level as it had in 2016 despite recording fresh highs this year.
“We’ve had 12 new highs in the market this 2017. In fact, we hit the high of 8,600 in one trading day. We had a P62-billion tender offer from EDC (Energy Development Corp.)… And yet volume is just the same, if not less than volume for 2016,” Mr. Monzon said.
Given the increase in STT, the PSE would then have to launch more programs to attract more foreign investors.
“Obviously we need to do a lot of work to increase interest in our capital markets and at the PSE side, we are really embarking on a lot of initiatives to make it more attractive to the foreign investors,” Mr. Monzon said.
These initiatives include the launch of short selling functions and centralized securities borrowing and lending by the first quarter of 2018, as well as new indices in the future.