The Capital Markets Efficiency Promotions Act, or CMEPA, was signed into law on 29 May 2025 and took effect on 1 July with no less than President Bongbong Marcos gracing the Philippine Stock Exchange to formally announce what hopefully signals the beginning of a new dawn for our stock and bond markets. For readers out there who may not be too conversant with the financial markets, let me briefly explain what the CMEPA is all about.

CMEPA is a law that aims to streamline and harmonize the confusing array of various tax rates imposed on investment transactions in stocks and debt instruments from the straightforward bank deposits to the more sophisticated products such as mutual and unit investment trust funds which hopefully will attract more Filipinos, and not just those with deep pockets but even the ordinary Juans, to invest in the capital markets and earn a better return for their money.

Furthermore, CMEPA will somewhat reduce our investment friction costs, aligning us more closely with our ASEAN neighbors, and with our fingers crossed, in the process, attract more foreign investors to give our country’s financial markets a closer second look.

So now that the hoopla of the CMEPA commencement is over, will the new law indeed boost our capital markets and make us more competitive?

Let’s begin with the regional comparison of tax rates. Our stock transaction tax rate is now down to 0.1 percent from the previous 0.6 percent, putting us on the same level as Indonesia. That’s great, but then there’s Malaysia, Singapore and Vietnam which are at 0 percent. Hmm… a relatively small amount, but still. Perhaps something for our economic team to reconsider in the future?

On capital gains tax for foreign share transactions of Pinoys, we’re now at only 15 percent compared to the final tax rate of 25-percent on all income. Again, that’s great! But perhaps applicable only if that type of offshore income is declared by the taxpayer to begin with?

However, I believe it no longer requires tons of money to open online an offshore trading account with foreign stock brokerages, which can simply be done with a no-hassle transfer of funds from an FCDU account. This, of course, means a 0 percent tax rate, realistically, for those who don’t bother to declare. Our peers in the region apparently don’t bother to have any tax on these types of transactions.

On dividends, final tax withheld is 10 percent for Pinoys but 20 percent for non-residents. We’re at par with Indonesia and Malaysia but Singapore doesn’t tax its residents and Vietnam only taxes at 5 percent. On the Documentary Stamp Tax, we’re now at 0.75 percent from 1 percent. Great! But all our peers don’t have any DST. On interest income, at 20 percent, it’s the same as before the CMEPA, but for the FCDU it’s a notch higher from 15 percent to 20 percent. Ouch!

On balance, our investment-related tax rates are now indeed more streamlined and have nudged us closer to our neighbors. But, let’s have a reality check—our government treasury needs more revenues to shore up our coffers that were eroded by the pandemic standstill on most businesses. Also, the wasteful, inefficient and perhaps even dubious misallocation of funds our country has had to suffer hasn’t helped any. So for now, let’s not bet on any additional loosening up of taxes for the near future.

But are taxes the only reason for the dismal state of our markets?

Unfortunately, there are a host of other issues that we have to contend with. The most glaring is the lack of depth of our stock market in trading volume and, more significantly, the relatively low number of listed stocks compared to our neighboring peers.

There are only 270 listed companies in the PSE with a market capitalization of about $200 billion as of November 2024. On the other hand, consider our neighbors. Singapore has 643 listed companies with a market cap of $600-B; Thailand has 600 listed with a $500-B market cap; Indonesia has 936 listed with a market cap of $829-B; Malaysia with 900 listed and a market cap of $200-B; and Vietnam combining Hanoi and Ho Chi Minh has 750 listed and a market cap of $750-B. Embarrassingly, the only neighboring stock exchanges trailing us are Cambodia with 12 listed and a market cap $3-B, Lao 10 listed and a cap of $1B, and Myanmar eight listed with $200-B market cap.

Given the above numbers, is it any wonder then that foreign investors who drive the markets have such a minuscule share of their indexes for the Philippines?

There are of course other Gordian Knot market issues that the capital market stakeholders have been grappling with for decades. And in this regard, Institute of Corporate Directors Chair Emeritus Dr. Jesus Estanislao has proposed a marketwide initiative to untie these knots. He has given ICD the task of enlisting the cooperation of other market players and, more importantly, the regulators.

Hopeful first steps are already in place—the passage of CMEPA and the appointment of market savvy Francis Lim who is fully tuned in to these issues as the new SEC Chair.

Until next week… OBF!