Market investors can expect lower transaction costs following the enactment of a new law aimed at enhancing the country’s capital markets and making the Philippine Stock Exchange (PSE) more competitive on a regional level.

President Ferdinand Marcos Jr. recently signed Republic Act 12214, also known as the Capital Markets Efficiency Promotion Act (CMEPA), which immediately reduces the stock transaction tax (STT) from 0.6 percent to 0.1 percent. This significant tax cut is expected to stimulate trading activity, increase liquidity, and help the PSE attract more investors, both local and foreign.

The PSE welcomed the reform, noting that the country had previously had among the highest friction costs in Southeast Asia — a significant factor that discouraged market participation. With CMEPA in place, the PSE is optimistic that the lower trading cost will level the playing field and reinvigorate investor confidence.

In addition to lowering the STT on equities, the law also expands the tax’s coverage to include other types of securities listed and traded on the local exchange. This provides clarity on the tax treatment of asset classes beyond stocks and supports the development of more diverse financial products in the domestic market.

CMEPA includes broader reforms aimed at supporting capital market growth. A more comprehensive definition of “securities” under the law simplifies tax application to various financial instruments, which could expedite the introduction of new investment tools, such as derivatives. 

Stamp tax slashed

The law also reduces the documentary stamp tax on the original issuance of shares, from 1 percent to 0.75 percent of par value — a change that will benefit companies looking to raise capital through initial public offerings or follow-on listings.

Further encouraging long-term savings, the law enhances incentives for contributions to the Personal Equity and Retirement Account (PERA). Private employers who match or exceed their employees’ contributions to PERA will now enjoy an additional 50 percent tax deduction on their actual contributions — an incentive expected to increase participation in long-term investment programs.

The PSE expressed its gratitude to key government leaders for supporting the passage of CMEPA. These include Senate President Francis Escudero, House Speaker Ferdinand Martin Romualdez, and the chairs of the Senate and House Ways and Means Committees, Senator Sherwin Gatchalian and Representative Joey Salceda.

The Exchange also acknowledged Special Assistant to the President for Investment and Economic Affairs Secretary Frederick Go for championing the measure, and Department of Finance Secretary Ralph Recto for making the law a priority under the government’s economic reform agenda.