MANILA, Philippines – Stock market stakeholders are raising howl over the decision of the Bureau of Internal Revenue to raise the stock transaction tax, to 10 percent from half of one percent, on shares of companies that fail to comply with their minimum public ownership (MPO) requirement.
This developed as Securities and Exchange Commission chairperson Fe Barin relayed to the Philippines Stock Exchange the letter of BIR Commissioner Kim Henares on the tax treatment of the trading of stocks of listed companies which are no longer compliant with the initial public offering requirement.
However, PSE president Hans said that the 10 percent to 33 percent MPO rule based on market capitalization no longer applies as the PSE has already changed its rules.
“The BIR’s position was made notwithstanding the approval by the SEC of the amended Minimum Public Ownership Rule of the Exchange which took effect on November 30, 2010,” Sicat said.
He explained that the amended MPO rule ‘states that listed companies shall, at all times, maintain a minimum percentage of listed securities held by the public of ten percent of the listed companies’ issued and outstanding shares exclusive of any treasury shares.”
Stock brokers note that the BIR notice comes at a bad time and may derail the bullishness of the local capital market which analysts expect to reach another record high this year.
Industry source said brokers and listed companies are likely to ask for a reconsideration of the rule, noting that, since the BIR directive is effective January 1, it already violates laws the bar retroactive tax measures.
They also bewailed the lack of implementing guidelines and the failure of the government to consult with the industry.
Stakeholders also noted that the PSE has already taken steps requiring tightly-held but listed companies to increase their public float this year. Some firms have already announced plans to sell more shares to the public.
In her letter to the SEC, Henares said the BIR is complying with the directive of Finance Secretary Cesar Purisima that the minimum public float is a continuing listing requirement.
Henares said that, in order to qualify as listed companies, firms should maintain their minimum public float of 10 percent to 33 percent, depending on the size of their market capitalization.
The BIR also noted that, as a publicly-listed company, at least 50 percent of the outstanding capital or total voting power of all classes of stock should not be owned directly or indirectly by just less than 20 individuals.
Henares said the income tax break and documentary stamp tax exemption under Sections 127 and 199 of the National Internal Revenue Code on trading of shares of stock listed in the PSE was provided to develop the capital market.
However, this was given on the condition that listed firms should continually maintain their MPO to enjoy the preferential tax rate of one half of one percent of gross selling price.
“Failure to do so exposes stockholders to the usual 5 percent to 10 percent capital gains tax as those listed companies are technically no longer compliant with their ‘public ownership’ status thus deemed no longer a publicly-listed company for taxation purposes,” said Henares.
Thus, Henares said the BIR will strictly impose the capital gains tax for publicly listed companies who will not maintain their public ownership requirement.