Increase in capital gains tax on sale of unlisted shares backed

MANILA, Philippines - The Tax Management Association of the Philippines (TMAP), which represents the country’s tax consultants and corporate tax practitioners, is pushing for an increase in  capital gains tax (CGT) rates on the sale of unlisted shares of stocks to provide additional revenues for the government and bring the rates closer to the personal income tax (PIT) rates.

CGT is a type of tax levied on the profit realized from the sale of  an investment such as stocks, bonds, property and precious metals.

TMAP proposed that the government raise the CGT rate to 15  percent for gains amounting to more than P1 million while those with capital gains of P1 million and below will remain to be taxed at the rate of 10 percent.

“The only downside is that this type of tax is purely transactional and cannot be predicted with regularity,” TMAP said.

CGT rates in the Philippines currently range from five to 10 percent, which according to TMAP are far below the regular income tax rates imposed on individuals and corporations.

“Thus, in order to mitigate the reduction in PIT rates, this is one possible revenue measure that the government can look into to ensure greater equity and fairness in the system,” TMAP said in a  position paper submitted to the Senate and the  House of Representatives.

According to the TMAP, the Philippines is the only country which taxes gains on unlisted shares of stocks separate from ordinary income.   The only other exception is Vietnam which taxes it either at 20 percent of the net profit of at 0.1 percent of the transfer price, whichever is higher.

Among the countries that tax capital gains as ordinary profit are Cambodia, Indonesia, Myanmar and Thailand.

Several countries, however, do not impose CGT.  These are Brunei, Laos, Malaysia and Singapore.

Aside from this, TMAP has proposed the simplification of the tax system for business income earners and professionals to enhance compliance and expand the tax base. 

TMAP suggested that the government use the Optional Standard Deduction method to minimize discretion on the part of the taxpayer claiming the expense and the tax authority upon examination/audit.

To ensure an  efficient VAT system, TMAP proposed to set the VAT-exempt threshold at a point where collection costs saved is equivalent to foregone revenues.  “The higher the
threshold, the more efficient the system is,” the organization said.

TMAP proposed to provide for a presumptive VAT regime, which will help transition VAT-exempt taxpayers to the regular VAT system.
It proposed  the exemption of those with annual sales below P2 million including marginal income earners from the three percentage tax.

On the other hand, those with annual income of P2 million to P10 million would need to apply for VAT registration, file quarterly VAT returns and pay presumptive VAT based on sales.

TMAP also suggested the establishment of a special withholding VAT regime for individual taxpayers which have VAT-registered corporate clients.  “This will be most apt for individuals engaged by their corporate clients as management/technical consultants, talents, professional athletes, etc,” TMAP said.

 Under this proposal, VAT-registered corporate clients remit the 12 percent withholding VAT on behalf of the individual taxpayer and provide a withholding VAT certificate as proof of remittance..

The individual taxpayer must prepare an annual withholding VAT summary return to report all receipts subject to withholding VAT with withholding VAT certificates attached to the annual return.

These recommendations are on top of TMAP’s proposal to exempt individuals earning not more than P300,000 a year  from paying income tax and reduce the maximum tax rate to 30 percent from the existing 35 percent.

The lowest tax rate is adjusted from five percent to 10 percent for income of more than P300,000 but not over P500,000.  This is equivalent to P20,000.

For those earning more than P500,000 but not over P1 million,  the taxable income proposed by TMAP is P130,000 or 20 percent of total income.

A 25 percent tax rate, on the other hand, will be imposed on individuals with gross earnings of more than P1 million but not over P2.5 million.