SEC backs abolition of DST on stocks trading

The Philippine Stock Exchange (PSE) is pinning its hopes on a bill set to be filed this week at the Senate seeking to lower the transaction cost in stock trading.

Under the Omnibus Tax Bill, authored by Sen. Ralph Recto, the payment of the documentary stamp tax (DST) will be abolished for transactions in stocks, fixed income, mutual funds, derivatives, as well as securities borrowing and lending.

At present, investors are charged a fixed DST of P1.50 for every P200 of the par value of the stocks bought. The PSE has also proposed the reduction by a fourth of the sales tax, which is pegged at 1/2 of one percent of the amount of stocks sold.

PSE officials said the proposed exemption from the DST would help attract more investors into the equities market, boost liquidity and help perk up the sluggish state of the bourse.

"We are thankful to Sen. Recto for pushing this bill," PSE chairperson Vivian Yuchengco said. "The PSE board and all stakeholders are looking forward that the Senate will give its vote of approval to the proposed amendments which will be favorable not only to the market but also to the investing public and the nation’s financial environment," she added.

According to a study by Elkins/McSherry, a New York-based performance measurement house, the Philippines has the second highest transaction costs among comparable Asian equity markets.

The PSE also ranks among the highest in terms of costs on trades and among the lowest in terms of liquidity and activity within the Asia-Pacific region. In addition to commission rates and the applicable VAT, transfer taxes are high. Due to this, the Philippines is usually regarded as a relatively high-cost market by neighboring country standards.

Although the Department of Finance had some misgivings in granting the exemption, citing the country’s woeful budget condition, the PSE has argued that government can make up for the foregone revenues from the scrapping of the DST with the increase in the volume of trading as a consequence of the lower costs. – Conrado Diaz Jr.