Higher tax for illiquid firms bucked

MANILA, Philippines—The Philippine stock exchange sees no legal basis for the Bureau of Internal Revenue to slap capital gains taxes on trades of shares in publicly listed companies even if their public float falls below the minimum requirement of 10 percent.

As the November 30 deadline for companies to comply with the requirement draws near, PSE president Hans Sicat told reporters that they had requested the BIR to “harmonize” with the bourse the definition of trades exempted from the capital gains tax.

Despite the unfavorable market conditions constraining many companies from complying with the 10 percent requirement, Sicat said the PSE won’t extend the deadline. This meant that some of the companies might simply want to delay their compliance, except for the mining sector which was very attractive to investors at present, and thus won’t have problems selling shares at good valuation levels, Sicat said.

“Basically, the fine is doubling your listing annual listing fee which some may say is the cheaper thing to pay right now because if they sell equity too cheaply, shareholders will get mad so they will wait for the markets to improve,” Sicat said.

Companies that fail to comply with the requirement will have 36 months more before facing trading suspension and eventual delisting from the PSE.

But even for noncompliant companies, Sicat said the BIR would have no legal basis to slap capital gain taxes unless they are delisted, which in turn was a sole function of the PSE.

He pointed out that the preferential stock transaction tax would require only two things—that the trade was done on the exchange and the issuer was a publicly listed company.

“As the PSE, we want to be law abiding but we can’t change the application of a legal situation,” Sicat said, adding that Congress would have to amend the law first.

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