More companies will go public if the government would scrap the costly tax of 1-4 percent on the gross proceeds of initial public offerings (IPO) in the Philippines, the only country in Southeast Asia with such burden on stock debuts, the chief of the local stock exchange said.
Philippine Stock Exchange president Hans Sicat, in a forum with investors of mutual fund firm Philam Asset Management Inc. last week, said the seeming reluctance among companies to list on the local bourse could be attributed to a mix of “emotional” and “structural issues.”
Sicat said many family-owned enterprises were still quite scared to go public for fear of losing absolute control. “They don’t buy the argument that it’s better for them to own 70 percent of a big company than 100 percent of a small company,” Sicat said.
Sicat said the PSE was working with bankers to educate many of the country’s entrepreneurial families. With some businesses now being passed on to second-generation members, Sicat suggested that the younger scions might be more open to tap the capital market to fast-track growth prospects.
One big game-changer in the years ahead is the creation of a unified economic community within the Association of Southeast Asian Nations (Asean) by 2015. “This forces us in the Philippines to be aware that fundamental change is coming,” Sicat said.
On structural issues, Sicat said the Philippines was the only country in Asean that charged an IPO tax, adding to friction costs and thereby becoming a disincentive.
“Before, companies would complain about bankers’ fees or lawyer fees, now they complain about the government taking a lot more,” Sicat said.
The proposal to scrap the IPO tax has been communicated to fiscal officials who have, however, appeared lukewarm to it. But to develop the capital markets, Sicat said he believed this could be something that could make a difference and something that could be addressed at the executive level, possibly through the issuance of an executive order.
The 1-4 percent IPO tax is slapped on the gross selling price or gross value of shares of stocks sold, bartered, exchanged or otherwise disposed in accordance with the proportion of total stocks after listing.
Based on the Bureau of Internal Revenue’s website, for companies selling up to 25 percent of their stock through an IPO, the tax is set at 4 percent. For those bringing to public hands more than 25 percent but not over 33 1/3 of total stocks, the tax is 2 percent. For those selling more than 33 1/3, the tax is set at 1 percent.
During the forum with Pami investors, Sicat said that limited products in the stock market and a small investor base were among the country’s key challenges. These are on top of the need for inclusive growth, lack of necessary infrastructure, consistency in rule/law implementation and low awareness about the Asean Economic Community initiative.
On sectors that will likely do well in the Philippines, Sicat cited the financial, property, industrial and services sectors.
The financial sector is seen getting a boost from the huge capitalization of banks and insurance firms, consolidation activities in the banking industry and improved earnings momentum from lending and fee-based activities.
For property, Sicat said this segment was still supported by strong demand for residential, office and retail space as well as the backlog in mass housing. He noted that property developers were diversifying by expanding outside Metro Manila.