Lower taxes, bigger gains for investors
Sales or exchange of shares listed in the Philippine stock market are subject to stock transaction tax of 0.6 percent of the gross selling price of the stock sold.
Daily TribuneSales or exchange of shares listed in the Philippine stock market are subject to stock transaction tax of 0.6 percent of the gross selling price of the stock sold.
In a move that could significantly impact securities traders, the Philippine government has proposed a bill aimed at lowering taxes on stock trading. Senate Bill 2865 proposes to enact a law titled “Capital Markets Efficiency Promotion Act” (CMEPA). It is designed to make the Philippine capital market more efficient and regionally competitive. By reducing the tax burden, the bill seeks to encourage activity in the Philippine securities market. For investors, this could mean a more favorable landscape for trading and greater opportunities for growth. Let’s take a closer look at what this bill could mean for you.
Sales or exchange of shares listed in the Philippine stock market are subject to stock transaction tax of 0.6 percent of the gross selling price of the stock sold. CMEPA will lower the stock transaction tax to 0.1 percent of the gross selling price. This reduction is aimed to make the Philippines more competitive with its neighbors like Indonesia, Malaysia and Thailand. For traders, this means that more of their profits will remain in their pockets, making the Philippine equities market more appealing for those looking to invest or trade frequently.
CMEPA likewise proposes to reduce taxes on investment in shares of stock of Philippine domestic companies. Documentary stamp tax on issuance of shares will be reduced from 1 percent to 0.75 percent of the par value. By lowering taxes for capital investments in Philippine companies, it is anticipated that more capital will flow into the Philippines, particularly from long-term investors.
CMEPA is also expected to boost interest in Philippine investment funds. It proposes to exempt the original issuance of certificate, redemption, and disposition of Unit Investment Trust Funds (UITFs) and mutual funds from documentary stamp tax. Further, CMEPA exempts from gross income the gains from the redemption of these investment funds.
CMEPA also proposes to put foreign shares in the same plane as domestic shares. CMEPA proposes to extend the final CGT of 15 percent to sale of shares in foreign companies.
Currently, only the sale of shares in domestic companies are subject to the final capital gains tax (CGT) of 15 percent on net capital gains. Any gain from sale of shares in foreign companies form part of the taxable income. Thus, currently, gains of Philippine citizens and residents on sale of shares in foreign companies are subject to the sliding tax rate of 15 percent to 35 percent (except if the individual’s taxable income did not exceed the income tax-exempt threshold of P250,000.00 annually). For domestic corporations, the tax rate generally stands at 25 percent.
By aligning the tax treatment of both domestic and foreign shares, CMEPA will simplify the tax process for Philippine investors. Instead of facing varying tax rates for gains from domestic versus foreign shares, Philippine investors will now pay a uniform 15 percent CGT, which can enhance clarity and reduce administrative complexity. Philippine investors may feel more confident in diversifying their portfolios by investing in foreign markets, which could lead to greater cross-border investment.
A counterpart bill in the House of Representatives, House Bill 9277, was filed for the same purpose of enhancing the capital markets. On 5 February 2025, the bicameral committee approved the reconciled versions of the two bills. If the President neither approves nor vetoes the bill within 30 days from receiving it, CMEPA will automatically be enacted.
As CMEPA progresses toward potential enactment, developments surrounding its implementation will continue to be closely monitored. With the bill’s potential to reduce taxes, enhance market efficiency, and create a more attractive environment for investors, it could significantly stimulate the Philippine capital market. Investors are encouraged to stay updated and ready to take advantage of the opportunities CMEPA could create for a stronger and more competitive market.
For more of Dean Nilo Divina’s legal tidbits, please visit www.divinalaw.com. For comments and questions, please send an email to cad@divinalaw.com.