BIR issues rules on higher stock transaction tax under TRAIN Law

The Bureau of Internal Revenue has issued the rules for the provision of the Tax Reform for Acceleration and Inclusion (TRAIN) Act raising the percentage tax on stock transfers.

Revenue Regulations No. 9-2018 signed by Finance Secretary Carlos G. Dominguez III and Internal Revenue Commissioner Caesar R. Dulay in February contained the guidelines implementing the increase in stock transfer tax provided in Section 39 of Republic Act No. 10963 or the TRAIN Law.

“There shall be levied, assessed and collected on every sale, barter, exchange, or other disposition of shares of stock listed and traded through the local stock exchange other than the sale by a dealer in securities, a tax at the rate of six-tenths of 1 percent [0.6 percent] 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,” the BIR said.

Previously, the percentage tax on sale, barter or exchange of shares of stock listed and traded through the local stock exchange or initial public offering was a lower one-half of 1 percent or 0.5 percent.

As such, the TRAIN Law increased the stock transaction tax by 20 percent.

According to reports, the increase in the stock transaction tax is expected to raise P1.7 billion in additional revenues per year.

However, the Philippine Stock Exchange had raised concern that the higher tax rate would make local equities less competitive versus their regional peers.

At the previous rate of 0.5 percent, the Philippines’ stock transaction tax was already the highest in Asean.

In Malaysia, stock transactions at the Bursa Malaysia are charged with only 30 basis points of the transaction value in the form of stamp duty while in Hong Kong Exchanges, such transactions are charged with only 10 basis points of the transaction value in the form of stamp duty. In Vietnam, a capital gains tax equivalent to 10 basis points of gross sale proceeds is levied on transactions through the Ho Chi Minh Exchange.

Indonesia also imposes a stock transaction tax equivalent to only 10 basis points of the transaction amount. There is an additional 50 basis points charged for founder shares of companies doing an initial public offering. /je