Press Release
June 3, 2010

Developing RP's stock market into an effective & meaningful instrument of nat'l economic development

As stock markets have become more global and the threat of being marginalized has become more apparent Senator Edgardo J. Angara files bill that will recognize the importance of having a vibrant stock market to help push and sustain economic growth.

"The Philippines has one of the oldest stock markets in Asia tracing its roots since 1927 with the establishment of the Manila Stock Exchange. Despite this feat, there lies however the sordid truth that at this point in the history of the country's capital market, we continuously lag behind against our Asian neighbors, even with those markets that have come much later than the Philippines," said Angara, chairman of the Senate Committee on Finance.

He added, "It has often been cited by the Philippine Stock Exchange (PSE) that not even one half of the country's population invests in the stock market. When compared with the level of participation in other economies, which range from 10-30% in Hong Kong, Malaysia and Singapore, this figure becomes alarming."

Senate Bill 3577 primarily proposes to enhance the regulatory environment that will allow the stock market to grow by taking out the unnecessary tax impediments that have only served to make our market less competitive.

Angara explains, "While we charge one of the highest taxes globally for stock market trading, other markets have moved to minimize if not remove altogether any form of taxes on stock market trading such as the case in Thailand, Vietnam, Malaysia and Singapore."

Further, a tax burden that is only unique in the Philippines is the initial public offering (IPO) tax that is charged on companies that wants to raise capital in the stock market. While government believes that it needs to tax as well for these private sector undertakings, other markets have actually introduced different tax incentives to attract more companies to go public. These incentives have come in the form affording listed companies lower corporate income taxes once they are listed, subject to certain conditions.

"Encouraging more companies to list in the stock market can be an effective mechanism for improving government revenue collections. Data show that listed companies account for a sizable portion of the corporate income tax collections by the Bureau of Internal Revenue (BIR). In 2007, the corporate income tax paid by listed companies to the government reached P81.S billion, representing 34% of the total corporate income tax collections of the BIR. The data on the aggregate income tax collections from listed companies is gathered from only 234 companies, which actually represent only 0.06% of the potential tax base of the BIR of about the 371,000 BIR-registered corporate taxpayers," said Angara.

SB 3577 also recognizes the need to update our tax systems to properly address the need to provide more hedging instruments in the market that have become more and more essential to attract more investors to pour their money in the market. It is for this reason that the bill introduces a tax framework, which is loose if not absent altogether under current tax laws, to make derivatives and commodities trading viable. These derivatives instruments will allow investors more flexibility in their trading strategies. The bill attracts these instruments to become traded in the exchange so as to subject them to stringent rules and guidelines and minimize counterparty risks.

"To improve the stock market, there is a need to institute reforms that will allow future generations to sustain the momentum that will hopefully be triggered by this bill. It is for this reason that the bill also proposes to make mandatory the incorporation of financial literacy subjects in the high school and college curricula," Angara concludes.

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