A game-changing tax reform that slashes the cost of trading shares in the Philippines is set to take effect on 1 July, a move the Philippine Stock Exchange (PSE) says could jumpstart market activity and improve the country’s appeal to investors.

The change comes as part of the Capital Markets Efficiency Promotion Act (CMEPA), or Republic Act 12214, which mandates a sharp drop in the stock transaction tax (STT) from 0.6 percent to 0.1 percent of the gross selling price.

The PSE, in an advisory, confirmed that the tax cut will apply to all transactions made through the exchange starting next month – provided that the law is fully published by then, as required under Section 29 of CMEPA.

“On the premise that publication of CMEPA will be completed before July 1, 2025, the stock transaction tax of one-tenth of one percent shall apply to transactions through the exchange made on July 1, 2025 onwards,” it said.

For years, local brokers and market reform advocates have lobbied for the reduction, pointing out that the Philippines had one of the steepest trading costs in Southeast Asia. The higher friction costs, they argued, discouraged investors and dampened liquidity.

The PSE echoed this view, calling the STT cut a “much-awaited reform” that could stimulate trading volume and align the local bourse with more competitive regional markets.

More than just equities

Beyond trimming the tax, CMEPA also updates the way taxes are applied to other securities traded through the exchange – a move seen to foster product innovation.

“CMEPA also expands the application of stock transaction tax to other securities listed and traded through a local stock exchange which lends certainty to the tax regime applicable to the secondary transfer through the stock exchange of asset classes other than equities and facilitate the launch of more products in the local stock market,” the PSE said.