PSE warns higher stock tax may deter foreign investors

The Philippine Stock Exchange (PSE) expressed concern that, while the passage of the tax reform package will boost market confidence, the proposed hike in stock transaction tax will make local equities even less competitive in the region.

“While we are happy that it (Tax Reform for Acceleration and Inclusion) will help in the market in the long-haul, but included the increase in the stock transaction tax by 20 percent, 0.5 percent to 0.6 percent,” said PSE Chairman Jose Pardo.

He noted that, because of the shortfall in revenues from the exemption of certain products from higher taxes, “they began to cherrypick on where they feel they could bring it up.”

However, Pardo pointed out that the government stands to earn additional revenues of only R500 million from the higher stock transaction tax.

However, PSE President Ramon Monzon said that, while it may appear to be a small increase, a 20 percent hike in transaction tax will be of concern to large foreign investors for whom the absolute amount of increase per transaction will translate large sums.

“What has to be understood is that the PSE does not operate in the local stock market alone. We are really competing with other Exchanges. We compete for the money of the foreign investors. So when you increase the stock transaction tax, you increase the friction cost,” said Monzon.

He explained that, “as it is right now, before the increase, at 50 basis points of one half of one percent, the Philippine stock transaction tax is already the highest in the whole region.”

He said the next highest tax in the region is just 30 basis points. “And theirs is not a stock transaction tax, It is a capital gains tax. Meaning, if you invest in shares and you lose money, you don't pay anything. Here, whether you gain or lose in a trade you have to pay the tax,” Monzon said.