Removal of documentary stamp tax to boost stock transactions

MANILA, Philippines - Finance officials said the removal of the documentary stamp tax (DST) on stock sales should boost stock transactions enough to make up for over P1.4 billion in foregone revenues.

Finance Undersecretary Gil Beltran said yesterday that the Department of Finance (DOF) is expecting an increase in the volume of transactions that would translate into a corresponding increase in revenues from value added tax and stock transaction tax.

“We just hope there will be an increase in the turnover of transactions in the stock exchange,” Beltran said.

Malacañang earlier signed into law Republic Act 9648 that permanently abolished the documentary stamp tax on the secondary trading of shares – a 75-centavo tax for every P200 par value on the secondary trading of shares of stocks.

According to the Philippine Stock Exchange (PSE), this tax was one of the reasons why the cost of investing in the local bourse was among the highest compared with other markets.

Aside from the DST, stock market investors also have to pay a 0.007-percent gross receipt tax, a 0.000917 percent Philippine Depository and Trust Corp. charge, a 0.05 percent sales tax, and a 0.000917 percent Securities Clearing Corp. fee.

These charges were on top of standard fees such as a brokerage commission of a maximum of 1.5 percent of the transaction cost plus 12-percent value added tax, a transfer fee of P100 plus 12-percent VAT and a cancellation fee of P20 plus 12-percent VAT.

According to the PSE, the stock transaction taxes collected by the government increased 500 percent when the transactions were exempted from documentary stamp tax in 2004 to March 2009 as more people invested in the local bourse.

But the DOF is expecting revenue losses over the short term, prompting economic managers to petition the Legislative Executive Development Advisory Council to impose a moratorium on revenue-eroding measures at a time when the deficit was threatening to blow out.

The DOF estimated that the government would forego at least P111 billion in potential revenues this year due to tax cuts as well as lower oil prices, easing inflation rates, and softening interest rates.

The DOF said it would forego between P51 billion and P56 billion due to the implementation of several laws including the implementation of tax relief exempting minimum wage earners from withholding tax and increasing the personal exemptions of individual taxpayers under Republic Act 9504.

The government has also reduced the minimum corporate income tax to 30 percent from 35 percent starting January 1 under RA 9337 or the Expanded Value Added Tax Act of 2005, and the establishment of the Personal Equity and Retirement Account under RA 9505.

The impact of declining inflation is also expected to cost another P31 billion and another P26 billion from lower oil prices, and P3 billion from softening interest rates.

These losses would come at a time when the Arroyo administration is expecting to incur a budget deficit of P250 billion or 3.2 percent of the gross domestic products instead of P199.2 billion or 2.5 percent of GDP this year due to the full impact of the global economic meltdown.