Philippines exchange opposes capital gains tax

The Philippine Stock Exchange is bucking the proposal of the Department of Finance (DOF) to impose the capital gains tax on listed companies that fail to maintain their minimum public ownership status.

In a memorandum posted on its website, Hans Sicat, Philippine Stock Exchange (PSE) president and chief executive officer, questioned the "rule-making" power of the DOF, saying the application of the tax rate of one half of 1 percent should stand since this was stated in the law.

Section 126 (A) of the National Internal Revenue Code of 1997 states "that every sale, barter, exchange or other disposition of shares of stock listed and traded through the local stock exchange other than the sale by a dealer in securities shall be subject to tax at the rate of one-half of one percent of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed of."

"The application of the stock transaction tax is only conditioned on the listing of the shares and the execution of the trade of those shares through the facilities of the stock exchange," Sicat said.

"The Exchange maintained that although the Secretary of Finance has the authority to promulgate the necessary rules and regulations for the effective enforcement of the Tax Code, such rule-making power should be confined to details for implementing the law as it has been enacted and it cannot be extended to amend or expand the statutory requirements of the Tax Code," the PSE chief said.

Sicat earlier said that the Bureau of Internal Revenue (BIR) position disregarded the approval by the Securities and Exchange Commission (SEC) of the amended Minimum Public Ownership (MPO) Rule, under which listed companies should maintain a public float of 10 percent of their issued and outstanding shares, exclusive of any treasury shares.

Last week, the PSE posted on its web site a letter from the corporate regulator dated January 3, notifying the bourse of the BIR plan to hike the capital gains tax to 5 percent or 10 percent effective January 1.

Forty companies have yet to meet this bourse rule, Sicat said.