The Philippines is set to reduce the tax on stock transactions by more than 83% from 0.6% to 0.1%, aligning it with the rest of the capital markets in the region.

Speaking to The Asset ahead of the Philippine Investment Summit slated for the 16th of October 2024, Ralph Recto, the secretary of finance, shares that the agreement was reached at his meeting on Tuesday (August 20) with the chairman of the country’s Senate ways and means committee, together with Frederick Go, special assistant to the president for investment and economic affairs.

Recto hopes that reducing the stock transaction tax will boost investors’ interest in the Philippine capital market, which is a laggard compared with the other stock markets in the Asean region.

Finance secretary Ralph Recto says bringing down the transaction tax should reduce the friction cost that has placed the country's stock market at a disadvantage.

“The [Philippine] stockmarket daily turnover averages some 7.5 billion pesos (US$133 million). Our neighbours are doing about US$1 billion a day,” he points out. “If we can increase it by fivefold, that would be a [good] beginning.”

Compared with the leading stockmarkets in Asean, the Philippine Stock Exchange (PSE) struggles to keep pace. The monthly value of share trading is US$2 billion at the end of July 2024. This is a fraction of Vietnam’s US$16 billion, Malaysia’s US$18 billion, and Thailand’s US$22 billion.

In terms of market capitalization, it is 40% of the Indonesia Stock Exchange. The number of listed companies on the PSE at 284 is behind all the comparable exchanges including the Vietnam Exchange with 724 listed companies, Singapore Exchange with 622 listed, and Bursa Malaysia with 1,018.

The agreement follows the approval on third reading of House Bill 9277, the proposed Capital Markets Efficiency Promotion Act, authored by Joey Salceda, chair of the House of Representatives' ways and means committee, in March 2024. 

The stock transaction tax was increased from 0.5% to 0.6% in 2019. Salceda noted at the time that the PSE index had declined by 29.8% since the tax increase.

Recto says the move to bring down the stock transaction tax to 0.1% should reduce the friction cost that has placed the PSE at a disadvantage to the other markets. Other exchanges such as those in Indonesia, Malaysia, and Thailand have pegged their stock transaction tax at 0.1%.

The Asset is organizing the 19th Philippine Investment Summit with the theme Seizing Opportunities, Sustaining Growth on the 16th of October 2024. The annual gathering, the longest of its kind in the country, is expected to draw thought leaders including economic policymakers, corporate leaders, and investors to discuss key topics including the development of the Philippine capital market. To register your interest to join this annual event, please click here.