Republic of the Philippines

HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

NINETEENTH CONGRESS
Second Regular Session

H6UsEB|LLNo. 8958

Introduced by REP. JOEY SARTE SALCEDA

AN ACT
INSTITUTING REFORMS TO ENHANCE THE EFFICIENCY AND DYNAMISM OF
THE PHILIPPINE CAPITAL MARKETS, AMENDING FOR THE PURPOSE SECTIONS
24, 24, AND 127 0F THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED

EXPLANATORY NOTE

This measure aims to boost the capital markets and the investment competitiveness of
the Philippines, and create parity in the tax treatment of debt and stock securities by instituting
the following:

(1 ) Reduction of the stock transaction tax from 0.6% to 0.1 %;

(2) Imposition of the debt transaction tax of 0.1 %, except for government securities;
and

(3) Reduction of the dividends tax to non-resident aliens from 25% to 10% to harmonize
the cash and property dividends rate.

The rationale for these amendments is as follows:

(1) Immediate Reduction Of the stock transaction tax from 0.6% to 0.1%. The
Philippines currently imposes the highest stock transaction levies among all major economies
in the ASEAN. As a result of this and other factors, the Philippine Stock Exchange index is
also the worst performing stock market index among all ASEAN-6 countries. Reducing this to
0.1 % will result in a reduction in revenues by P6.763 billion.

This has adverse effects on the strength of the country's pension and health insurance
systems, because the Social Security System and the Philippine Health Insurance Coaporation
charters have strict investment policies that limit their equities exposure almost exclusively to
Philippine index stocks.

It also affects the capacity of Philippine companies to raise money through the
Philippine markets. In part because of high transaction costs, the Philippine Stock Exchange
has the fewest listed companies of all ASEAN-6 economies, with just 275 listed companies,
with the second lowest already being Singapore, with some 640 listed companies.

Number of listed companies

`-..``-`--`-:

Since the stock transaction tax was increased from 0.5% to 0.6% of transaction value,
the PSEi has declined by 29.83%.

(2) Reduction of the dividends tax to non-resident aliens from 25% to 10% to
fo¢r"o#I.zc ffoe c¢sfo ¢"dprapcrty di.tJi.de#ds rofc. Along with the stock transaction tax, higher
dividends taxes on non-resident aliens discourage foreign buying of Philippine stocks, which,
in turn, prevents price discovery. As a result, Philippine stocks stagnate in value. In fact,
monthly transaction volume continues to be lower than 2012 levels in peso terms. In dollar
terms, it matches 2007 levels. Reducing this to harmonize rates to 10% will result in a reduction
of revenues by P5. 097 billion.
 Monthly PSE transaction value (in USD million)
6000.0

5000.0

4000.0

3000.0

2000.0

1000.0

0.0

:-: ---- i -i i I----i ----i --.I-`i. -i -i ------ : -:-. TI .-----i ` : -=-.-.

/3/ Jmpos!.fl.oH a/£foe dcbf fr¢Hs¢cft.o# fm]c - To promote parity between stock and debt
instruments as means of capitalization, this measure imposes a debt transaction tax at a rate of
0.1 % of the gross selling price of the instrument, in parity with the stock transaction tax. The
measure will raise revenues by P2.035 billion.

The refomi will result in a revenue loss of P9.825 billion, but will increase pension
assets in the SSS and GSIS alone by at least P72.9 billion.

In view of the foregoing, the approval of this bill is urgently sought.

 Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

NINETEENTH CONGRESS
Second Regular Session

HbusEB|LLNo.8958

Introduced by REP. JOEY SARTE SALCEDA

AN ACT
INSTITUTING REFORMS TO ENHANCE THE EFFICIENCY AND DYNAMISM OF
THE PHILIPPINE CAPITAL MARKETS, AMENDING FOR THE PURPOSE SECTIONS
24, 24, AND 127 0F THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED

SEC. 1. Sfeor/ fz.//e. -This Act shall also be known as the "Capital Markets Efficiency
Promotion Act."

SEC. 2. Section 24 of the National Internal Revenue Code, as amended, is hereby

further amended to read as follows:

"SEC. 24. Income Tax Rates. -

(A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of
the Philippines. -

XXX

(8) Rate of Tax on Certain Passive Income: -

(1) Interests, Royalties, Prizes, and Other Winnings.

XXX

(S) FINAL TAX ON LISTED AND TRADED DEBT INSTRUMENTS. -AL

FINAL TAX AT THE RATH 0F ONE-TENTH 0F ONE PERCHNT (1/10
0F 1%) OF THE GROSS SHLLING PRICE OR GROSS VALUE IN
MONEY 0F THE DEBT INSTRUMHNT OR SECURITIES SOLD,
BARTERED, HXCHANGED, OR OTHERWISE DISPOSHD SHALL BE
LEVIED, ASSESSED, AND COLLECTED ON EVERY SALE, BARTER,
EXCHANGE, OR OTHER DISPOSITION 0F DEBT INSTRUMENTS
 AND OTHER SHCURITIHS, LISTED AND TRADED THROUGH A
LOCAL EXCHANGE 0R AN ORGANIZED MARKETPLACE, AND
SHALL BE PAID BY THE SELLER 0R TRANSFEROR: PRoylDED,
THAT DEBT INSTRUMENTS ISSUED BY THE PHILIPPINE
GOVERNMENT SHALL BE EXEMPT FROM THE TAX IMPOSED
HEREIN. „

SEC. 3. Section 25 of the National Intemal Revenue Code, as amended, is hereby

further amended, to read as follows:

¢6SEC . 25 . Tax on Nonresident Alien Individual . -

(A) Nonresident Alien Engaged in trade or BLisiness Within the Philippines. -

//) J77 Gc77€crc7/. - A nouresident alien individual engaged in trade or business in

the Philippines shall be subject to an income tax in the same manner as an
individual citizen and a resident alien individual, on taxable income received
from all sources within the Philippines. A nouresident alien individual who shall
come to the Phihppines and stay therein for an aggregate period of more than one
hundred eighty (180) days during any calendar year shall be deemed a
'nouresident alien doing business in the Philippines'. Section 22 (G) of this Code
notwithstanding.

(2) |Cash and/or Property Dividends from a Domestic Corporation or Joint Stock
Company, or Insurance or Mutual Fund Company or Regional Operating
Headquarter or Multinational Company, or] Share in the DistribLitable Net
Income of a Partnership (Except a General Professional Partnership), Joint
Account, Joint Venture Taxable as a Corporation or Association, Interests,
Ro};cz//z.cs, Prj.zc's, cz77c7 0f/7c;' 7yz.7!J7j./7gr. - [Cash and/or property dividends from a
domestic corporation, or from a joint stock company, or from an insurance or
mutual fund company or from a regional operating headquarter of multinational
company, or t]The share of a nonresident alien individual in the distributable net
income after tax of a partnership (except a general professional partnership) of
which he is a partner, or the share of a nonresident alien individual in the net
income after tax of an association, a joint account, or a joint venture taxable as a
corporation of which he is a member or a co-venturer; interests; royalties (in any
form); and prizes (except prizes amounting to Ten thousand pesos (P 10,000.00)
or less which shall be subject to tax under Subsection (8)(1 ) of Section 24) and
other winnings (except winnings amounting to Ten thousand pesos (P 10,000.00)
or less froml Philippine Charity Sweepstakes Office (PCSO) games which shall
be exempt); shall be subject to an income tax of twenty percent (20%) on the total
amount thereof: Prow;.c7cd, /]owciJcr, That royalties on books as well as other
literary works, and royalties on musical compositions shall be subject to a final
tax of ten percent (10%) on the total amount thereof: Provz.c7cc7, ./izr/fecr, That
cinematographic films and similar works shall be subject to the tax provided
under Section 28 of this Code: Pro+'i.decJ, /itrf/tc„77o7e, That interest income from
long-term deposit or investment in the form of savings. common or individual
trust funds, deposit substitutes, investment management accounts and other
investments evidenced by certificates in such form prescribed by the Bangko
Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed under this
Subsection: Provided, finally, That should the holder of the certificate pre-
terminate the deposit or investment before the fifth (5th) year, a final tax shall be
imposed on the entire income and shall be deducted and withheld by the
depository bank from the proceeds of the long-term deposit or investment
certificate based on the remaining maturity thereof:

Four (4) years to less than five (5) years - 5%;

Three (3) years to less than four (4) years -12%; and

Less than three (3) years - 20%.

/3/ Cczpz./cz/ G¢j.#s. - Capital gains realized from sale, barter or exchange of shares
of stock in domestic corporations not traded tlirough the local stock exchange,
and real properties shall be subject to the tax prescribed under Subsections (C)
and (D) of Section 24.

(8) Nonresident Alien Individual Not Engaged in Tr(lde or Business Within the
Pfez./z¢pz.7tes.- There shall be levied, collected and paid for each taxable year upon
the entire income received from all sources within the Philippines by every
nonresident alien individual not engaged in trade or business within the
Philippines as interest, cash and/or property dividends, rents, salaries, wages,
premiums, annuities, compensation, remuneration, emoluments, or other fixed or
determinable annual or periodic or casual gains, profits, and income, and capital
gains, a tax equal to twenty-five percent (25%) of such income. Capital gains
realized by a nonresident alien individual not engaged in trade or business in the
Philippines from the sale of shares of stock in any domestic corporation and real
property shall be subject to the income tax prescribed uiider Subsections (C) and
(D) of Section 24."

XXX
"(IT) CASH AND/OR PROPERTY DIVIDENDS FROM A DOMESTIC
CORPORATION OR JOINT STOCK COMPANY, OR INSURANCE OR
MUTUAL FUND COMPANY OR REGIONAL OPERATING
HEADQUARTER OR MULTINATIONAL COMPANY OF A
jvoIVREsiDEIvr JrvDJPTD I+H£. CASH AND/oR pRopERTy DlvlDENDs
FROM A DOMESTIC CORPORATION, OR FROM A JOINT STOCK
COMPANY, OR FROM AN INSURANCH 0R MUTUAL FUND
COMPANY 0R FROM A REGIONAL OPERATING HEADQUARTER
0F MULTINATIONAL COMPANY TO A NONRESIDHNT INDIVIDUAL
SHALL BE SUBJECT TO AN INCOME TAX OF TEN PERCENT (10%)
ON THE TOTAL AMOUNT THEREOF."
I , .I C

SEC. 4. Section 127 of the National Internal Revenue Code, as amended, is hereby
further amended to read as follows:

"S;EC. \2:] . Tax on Sale, Barter or Exchange of Shares Of Stock Listed and Traded
through the Local Stock Exchange [or through Initial Public Offering] . -

(A) Tax on Sale, Barter or Exchange Of Shares Of Stock Listed and Traded
/forowgfe /fee foca!/ S/ocfrExcfecz#ge. -There shall be levied, assessed and collected
on every sale, barter, exchange, or other disposition of shares of stock OF A
DOMESTIC CORPORATION listed and traded through the local stock
exchange, OR LISTED AND TRADED IN BOTH A LOCAL AND
FOREIGN STOCK EXCHANGE, other than the sale by a dealer in securities,
IN LIEU 0F CAPITAL GAINS TAX, a tax at the rate of [six-tenths] ONE-
TENTH of one percent ([6/10] 1/10 of 1%) of the gross selling price or gross
value in money of the shares of stock sold, bartered, exchanged or otherwise
disposed which shall be paid by the seller or transferor"

Approved,