Analysts say that venturing into stock trading would yield a reasonable return on an idle fund. As popular as stock trading is, it cannot go away with the coverage of the tax rules in the Philippines.
Under the present National Internal Revenue Code of the Philippines, as amended, if there is a sale (other than by a dealer in securities) of shares of stock which is both listed and traded through the local stock exchange, such sale is subject to stock transaction tax. Stock transaction tax is imposed at the rate of one half 1% of the gross selling price or gross value in money of the shares of stocks.
However, in a recent revenue regulation (RR No. 16-2012) issued by the Department of Finance (DoF), it seems that the above tax rate could not be readily applied. Under the new regulation, beginning Jan. 1, 2013, it is necessary to determine whether a publicly-listed company that issued the shares is meeting the minimum percentage of public float (minimum public ownership of shares or MPO).
The MPO is set to be whichever the higher is between: (a) 10% of issued and outstanding shares exclusive of any treasury shares; or (b) the minimum public ownership required by the Securities and Exchange Commission or Philippine Stock Exchange (PSE).
Further, under the above regulation, publicly-listed companies which are non-compliant with the MPO as of Dec. 31, 2011 and those whose public ownership levels subsequently fall below the MPO level at any time prior to Dec. 31, 2012 may be allowed to comply with the MPO up to Dec. 31, 2012.
Hence, beginning Jan. 1, 2013, following RR No. 16-2012, if there is a sale of listed shares through the stock exchange and if the listed company meets the MPO, then the applicable tax on such sale is the stock transaction tax of one half of 1%. On the other hand, if in the said sale, the listed company does not meet the MPO, then the applicable tax on sale is the final tax at the rate of 5% and 10% on the net capital gains (capital gains tax). The rate of 5% applies to the first P100,000 net capital gain, while the 10% applies to the amount in excess of P100,000 net capital gain.
Thus, it will be either stock transaction tax or capital gains tax on sale of listed shares, other than the sale by a dealer in securities, depending on whether the listed company meets the MPO.
Note that in the two tax treatments above, there is a difference on the tax base. For stock transaction tax, the tax base is the gross selling price or gross value in money of the shares of stocks; while for capital gains tax, the tax base is the gain on sale (selling price minus cost).
So, for capital gains tax, if there is a loss on sale of shares of stocks, then there is no tax, but if there is a huge gain, the investor-seller will be hit at a rate of 5%/10% on the gain. Meanwhile, for stock transaction tax, regardless of how much the gain is or regardless of whether there is a gain or loss, the tax still applies, as the applicable tax base is the gross selling price or gross value in money of the shares of stocks.
As an additional note, under RR 16-2012, if the MPO requirement is not met, the sale will no longer be exempt from documentary stamp tax (DST). Instead, a DST at the rate of P0.75 on each P200, or fractional part thereof, of the par value of the stock sold, will be imposed.
Interestingly, the above MPO requirement for taxation purposes is not cited in the NIRC. Thus, on whether RR No. 16-2012, by prescribing an MPO requirement, goes beyond the interpretation of the provisions of the NIRC, it remains to be seen if a challenge will be posed in the future. At any rate, RR No. 16-2012 was already issued, and its effect will be felt more beginning 2013.
Another interesting development is that, subsequent to the above revenue regulation issued by the DoF, the board of the Philippine Stock Exchange (PSE), this time, approved a resolution to suspend listed companies with insufficient public ownership on the first trading day of 2013. Thus, it could happen that, although the shares are listed, it cannot be traded through the local stock exchange. Consequently, the sale of listed shares outside the PSE trading system will be subject to capital gains tax and documentary stamp tax.
It is unfortunate that there were recent reports that more than 20 listed firms are still below the minimum public float prescribed by the PSE.
Hence, from the perspective of an investor or prospective investor who is planning to trade listed shares, it will be a prudent course of action to factor in the impact of the above MPO requirement on tax consequences, in evaluating the amount of actual yield on stock trading ventures.
Punongbayan & Araullo
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