PSE: Twin reforms will cut friction costs
If you are a trader looking to get three percent to four percent growth in a day and fees are costing you over one percent already, then that is a hurdle
Daily TribuneIf you are a trader looking to get three percent to four percent growth in a day and fees are costing you over one percent already, then that is a hurdle
Photograph courtesy of Larry Cruz PSE president Ramon Monzon said the lubricating oil to remove friction costs is the Capital Markets Efficiency Promotion Act.
The stock market operator is banking on Congress to speed up the approval of two key reform measures that Philippine Stock Exchange president Ramon Monzon said is expected to reduce “friction costs” for market investors.
“Friction costs hurt the market. If you are a trader looking to get three percent to four percent growth in a day and fees are costing you over one percent already, then that is a hurdle,” Monzon said during Daily Tribune’s online Straight Talk program last Wednesday.
He said the Capital Markets Efficiency Promotion bill seeks to reduce the stock transaction tax from 0.6 percent to 0.1 percent and reduction of the dividend tax to non-resident aliens from 25 percent to 10 percent to harmonize the cash and property dividend rate.
Monzon said as several headwinds affect the stock market, the twin reforms are expected to reduce the anxieties of investors on the capital market and thus increase liquidity.
Albay Representative Joey Salceda filed last August House Bill 8958 to cover the proposed reforms. The House is currently consolidating related measures into one proposal.
Lowering the taxes will bring the local capital market at par with regional counterparts, in terms of encouraging investors in the equities market.
The Salceda measure seeks to amend the Tax Code and has the full support of President Ferdinand “Bongbong” Marcos Jr., who Monzon said has a deep understanding of the capital market.
The bill is part of a package of legislative and administrative reforms identified during a meeting between the Office of the Presidential Adviser for Investment and Economic Affairs, the Department of Finance, the Securities and Exchange Commission, the Bureau of Internal Revenue, and the Philippine Stock Exchange that seeks to increase the overall liquidity of the stock exchange, he said.
Highest friction cost in Phl
The Philippines has the highest stock transaction tax and charges among major economies in the Association of Southeast Asian Nations, or ASEAN.
Monzon said the country has also among the lowest number of publicly-listed firms among the big ASEAN economies.
“The Philippine Stock Exchange has the fewest listed companies of all ASEAN-6 economies. Since the stock transaction tax was increased from 0.5 percent to 0.6 percent of value, in 2019, the PSEi has declined significantly,” Monzon lamented.
Salceda said the level of activity of the market has a direct effect on the strength of pension and health funds such as the Social Security System and the Philippine Health Insurance Corp., or PhilHealth, the charters of which strictly limit equities exposure to index stocks.
