PSE not keen on BIR's capital gains tax ruling

MANILA, Philippines - The Philippine Stock Exchange (PSE) is cool to a Bureau of Internal Revenue (BIR) ruling subjecting listed corporations that do not meet the minimum public ownership rule to the usual capital gains tax of five to 10 percent during transactions beginning Nov. 30.

Currently, listed firms are only subjected to the stock transaction tax of one half of one percent.

PSE president Hans Sicat has questioned the BIR’s legal basis for coming out with such a ruling. He said imposing the capital gains tax on stock transactions could further undermine investor confidence and drag the market down.

The local market has entered a bear trend amid the exodus of foreign funds as growing expectation of a Greece defaulting on its debts increased fears of another global recession.

The PSE earlier said there were about 40 out of the 253 listed firms which are non-complaint with the rule. Among them are PNOC-Exploration Corp., Metro Pacific Tollways Corp., San Miguel Purefoods Co. Inc., Petron Corp., and Eton Properties Philippines Inc. These companies were given until Nov. 30 to raise their public ownership to 10 percent.

The PSE earlier objected to the BIR’s position, citing section 127 (A) of the National Internal Revenue Code of 1997 which states that transactions involving shares of stock and traded through the PSE other than the sale by a dealer shall be subject to the tax rate of “one-half of one percent.”

The BIR, however, maintained that a higher public float would provide liquidity to investors and, at the same time, curb price manipulation.

The minimum public float rule was revoked in 2005 as a requirement for continued listing and was instead imposed as a requirement for initial listing and backdoor listing.

The PSE said it wanted to revive the rule “to provide fair and efficient facility for price discovery and to ensure that sufficient liquidity exists. It was also intended to be at par with the rest of the regional exchanges.

Securities exchanges in Hong Kong, Singapore and Thailand already impose minimum float requirements of between 10 percent and 25 percent.