FOURTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
Third Regular Session 
) 
) 
) 
SENATE 
Senate Bill No. 3 5 7 7 
Introduced by SENATOR EDGARDO J. ANGARA 
EXPLANATORY NOTE 
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The Philippines has one of the oldest stock markets in Asia tracing its 
roots since 1927 with the establishment of the Manila Stock Exchange. Despite 
this feat, there lies however the sordid truth that at this point in the history of the 
country's capital market, we continuously lag behind against our Asian 
neighbors, even with those markets that have come much later than the 
Philippines'. The size of the local stock market is one of the smallest in terms of 
market capitalization and the level of liquidity continuous to struggle to meet 
international standards. 
It is convenient to cite the size of the ove~all economy as the reason for the 
sluggish growth of the stock market even as we watch other economies grow by 
us at much faster paces. It is however, another, to exact indolence by ignoring 
altogether the structural problems that prevail in the environment by which our 
market revolves. 
It has often been cited by the Philippine Stock Exchange (PSE) that not 
even one half of the country's population invests in the stock market. When 
compared with the level of participation in other economies, which range from 
10-30% in Hong Kong, Malaysia and Singapore, this figure becomes alarming. 
The number of listed companies has also become one of the shallowest in 
the past years as we see other exchanges adding 15 to 30 companies in their 
roster of listed companies year in year out, while the local stock market has 
managed to add only four companies annually. 
This bill is being introduced in recognition of the importance of having a 
vibrant stock market to help push and sustain economic growth. The need to 
catch up with other markets cannot be more emphasized particularly as stock 
markets have become more global and the threat of being marginalized has 
become more apparent. 
The bill primarily proposes to enhance the regulatory environment that 
will allow the stock market to grow by taking out the unnecessary tax 
impediments that have only served to make our market less competitive. 
First, while we charge one of the highest taxes globally for stock market 
trading, other markets have moved to minimize if not remove altogether any 
form of taxes on stock market trading such as the case in Thailand, Vietnam, 
Malaysia and Singapore. 
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Second, a tax burden that is only unique in the Philippines is the initial 
public offering (IPO) tax that is charged on companies that want to raise capital 
in the stock market. While our government believes that it needs to tax as well 
for these private sector undertakings, other markets have actually introduced 
different tax incentives to attract more companies to go public. These incentives 
have come in the form affording listed companies lower corporate income taxes 
once they are listed, subject to certain conditions. 
Encouraging more companies to list in the stock market can be an effective 
mechanism for improving government revenue collections. Data show that listed 
companies account for a sizable portion of the corporate income tax collections 
by the Bureau of Internal Revenue (BIR). For instance, in 2007, the corporate 
income tax paid by listed companies to the government reached P81.S billion, 
representing 34% of the total corporate income tax collections of the BIR. The 
data on the aggregate income tax collections from listed companies is gathered 
from only 234 companies, which actually represent only 0.06% of the potential 
tax base of the BIR of about the 371,000 BIR-registered corporate taxpayers. 
Third, this bill also recognizes the need to update our tax systems to 
properly address the need to provide more hedging instruments in the market 
that have become more and more essential to attract more investors to pour their 
money in the market. 
It is for this reason that the bill introduces a tax 
framework, which is loose if not absent altogether under current tax laws, to 
make derivatives and commodities trading viable. These derivatives instruments 
will allow investors more flexibility in their trading strategies. However, this bill 
does not promote over-the-counter derivative trading that are loosely regulated 
and are not subject to counterparty risk management procedures. Rather, the bill 
attracts these instruments to become traded in the exchange so as to subject them 
to stringent rules and guidelines and minimize cQunterparty risks. 
Lastly, this bill recognizes that to improve the stock market, there is a need 
to institute reforms that will allow future generations to sustain the momentum 
that will hopefully be triggered by this bill. It is for this reason that the bill also 
proposes to make mandatory the incorporation of financial literacy subjects in 
the high school and college curricula. 
In view of the foregoing, the immediate approval of this bill is earnestly 
requested. 
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FOURTEENTH CONGRESS OF THE 
) 
REPUBLIC OF THE PHILIPPINES 
) 
Third Regular Session 
) 
SENATE 
Senate Bill No. 3 577 
Introduced by SENATOR EDGARDO J. ANGARA 
, 
STOCK MARKET COMPETITIVENESS ACT 
Be it enacted by the Senate and the House of Representatives in Congress 
assembled: 
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SECTION 1. Short Title. -- This Act may be cited as the "Stock Market 
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Competitiveness Act of2009" or SMartCA. 
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SEC. 2. Declaration of Policy. - It is the declared policy of the State to develop 
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the Philippine stock market into an effective and meaningful instrument of national 
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economic development. This objective can only be achieved by instituting reforms which 
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include increasing the number of publicly listed 'corporations, improving corporate 
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governance among listed firms and fostering a favorable tax environment for stock 
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market transactions. 
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II 
SEC. 3. Definitions. - The following definitions shall apply in this Act, unless the 
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context otherwise requires: 
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a) "Commission" or "SEC" means the Securities and Exchange Commission of the 
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Philippines. 
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b) "Corporation" or "Company" means a juridical person organized and existing 
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under the laws of the Republic of the Philippines that is eligible for listing under 
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the rules of a local stock exchange. 
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c) "Free Float Shares" refers to those shares that are not held by founders, 
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directors, officers, affiliates, treasury shares, employees, shares held under lock-
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up, or any shareholder owning, directly or indirectly, ten percent (10%) or more 
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ofthe Company's total outstanding shares. 
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d) "Government-owned or controlled corporation" refers to a corporation 
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organized as a stock corporation, with a majority of its capital stock owned or 
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controlled by the Government, whether directly or through its instrumentalities, 
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and with the purpose of undertaking commercial or business activities for profit 
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on behalf of the Government. 
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e) 
"Independent director" shall have the same meaning as an independent director 
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under the Securities Regulation Code or other relevant law who are elected by at 
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least a majority of the outstanding capital stock and Minority Shareholders. 
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f) 
"Lists" or "Listing" means the listing of shares with a stock exchange in the 
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Philippines by any of the modes allowed by its rules as approved by the 
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Commission. 
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g) "Minority Shareholder" means a shareholder owning, directly or indirectly, not 
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more than one percent (1 %) of the outstanding capital stock of the Company. 
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h) "National Internal Revenue Code" or "NIRC" means Republic Act No. 8424, 
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otherwise known as the National Internal Revenue Code of 1997, as amended. 
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i) 
"Net Capital Gain or Loss" means the net capital gain or loss as defined under 
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Section 39 (A) of the ~IRC. 
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j.) "Notional Value" refers to the value of the underlying assets of a futures or 
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options contract at the spot price, such as but not limited to shares of stock of a 
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company, index, commodity and exchange traded fund" 
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k.) "Related Party Transaction" means a contract, operation, business deal or similar 
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act between at least two parties when: 
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(a) one party, directly, or indirectly through one or more intermediaries; 
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(i) 
controls, is controlled by, cir 'is under common control with, the 
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other party (which includes parents, subsidiaries and fellow 
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subsidiaries); 
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(ii) 
has an interest in the entity that gives it significant influence over 
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the entity; or 
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(iii)has joint control over the entity; 
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(b) one party is an associate of the other party; 
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(c) one party is a joint venturer of an enterprise in which the other party is also 
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a venturer; 
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(d) one party is a member of the key management personnel of the other party 
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or its parent; 
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(e) one party is a relative within the fourth civil degree of consanguinity or 
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affinity of any person referred to in (a) or (d); 
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(f) one party is an entity that is controlled, jointly controlled or significantly 
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influenced by or for which significant voting power in such entity resides 
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with, directly or indirectly, any person referred to in (d) or (e); or 
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(g) one party has a post-employment benefit plan for the benefit of employees 
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of the other party, or of any entity that is a related party of the other party. 
. 
. . 
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1.) "Securities Regulation Code" or "SRC" means the Republic Act No. 8799, 
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otherwise known as "The Securities Regulation Code". 
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m.)"Shares" refer to shares of stock of a corporation, warrants, options, futures, as 
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well as units of participation in a partnership (except general professional 
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partnerships), joint stock companies, joint accounts, joint ventures taxable as 
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corporations, associations, and recreation or amusement clubs (such as golf, polo or 
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similar clubs), and mutual fund certificates. 
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n.)"Special Income Tax Rate" means the rate of twenty five percent (25%) or a rate 
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differential of five percent (5%) from the regular corporate income tax rate, 
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whichever is lower, under Section 27, Title II of the NIRC. 
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0.) "Stock Exchange" means an organized marketplace or facility that brings together 
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buyers and sellers and executes trades of securities and/or commodities, and duly 
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registered as an Exchange by the Commission. 
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p.) "Trading Year" refers to the twelve-month period covering a Corporation's fiscal 
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year as provided in its Articles of Incorporation. 
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SEC. 4. Special Income Tax Rate - The special income tax rate shall apply to a 
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company that lists its shares with a local stock exchange within five (5) years from the 
, 
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effectivity of the tax regulations implementing this Act. Provided, further, the company 
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meets during the taxable year the following requirements as certified by the stock 
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exchange: 
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a) Volume Turnover Ratio - the total vohune turnover of the Company's shares for 
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the Trading Year must at least be 30% of its total outstanding listed shares; 
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b) Tradability - the shares of the Company must be traded at least 90% of the 
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Trading Days during the trading year; 
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c) The number of Free Float Shares must at least be 30% of its outstanding shares; 
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d) Related Party Transactions are disclosed to the Commission and the stock 
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exchange in accordance with the rules promulgated by the Commission; 
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e) The company has paid out dividends equivalent to at least thirty percent (30%) of 
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its net income for the preceding year out of its unrestricted retained earnings; not 
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later than the fifteenth day of the sixth month following the close of its fiscal 
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year; 
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1) The company has Independent Directors as defined in this Act,; and 
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g) The company has adopted an alternative dispute resolution system that 
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expeditiously and efficiently addresses intra-corporate controversies such as but 
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not limited to mediation, conciliation and arbitration, the material features of 
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which have been duly disclosed to the Commission and the stock exchange. 
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The special income tax rate shall be provided for a period of ten (10) years from 
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the date of listing by a company of its shares with a local stock exchange. 
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SEC. 5. Additional Incentives - A company that nitially lists its shares within five 
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years from the effectivity of this Act shall herein enjoy these additional incentives: 
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a) IPO Tax Exemption - It shall be exempt from the Initial Public Offering Tax 
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imposed by Section l27(B), Title V of the NIRC; 
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b) Last Priority in Tax Audi(- the corporation shall be entitled to last priority in 
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tax audit and collection of corporate income taxes paid to the national 
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government with respect to the tax years preceding the listing, and in the event 
of tax deficiency for said years, it shall enjoy a tax amnesty by paying not 
more than fifty percent (50%) of the tax due to the government for each of 
said years. 
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c) Immunity - Its officers, employees, professionals and any person acting on its 
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behalf in the preparation of its income tax return filed prior to listing shall be 
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immune from any prosecution for tax evasion under applicable laws. 
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SEC 6. Government-Owned or Controlled Corporations - Not later than five 
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(5) years from the effectivity of this Act, government-owned or controlled corporations 
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as defined in this Act, which are eligible for listing under the rules of a stock exchange, 
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shall offer their shares to the public and list the same with the stock exchange. They 
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shall be entitled to the same incentives and privileges granted by Sections 4 and 5 of this 
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Act upon compliance with the conditions set forth therein. 
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SEC. 7. Stock Transaction Tax - The stock transaction tax provided under 
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Section 127 (A), Title V of the NIRC shall be one-fonrth (1/4) of one percent (1 %) of the 
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gross selling price or gross value in money of the shares sold, bartered, exchanged or 
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otherwise disposed of payable by the seller, including commodity contracts listed and 
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traded in a local exchange; Provided that in the case of equity-based options and futures 
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and, the rate shall not be more than one-twentieth (1/20) of one (1) percent of the notional 
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value of the contract. 
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SEC. 8. Investor Education -
The Commission on Higher Education shall 
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ensure that a stand-alone subject on the stock market be included as part of the 
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curriculum for college students. The Department of Education shall likewise ensure that 
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the course of instruction for high school students shall include a component on the stock 
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market. 
Such component shall instruct the students on the principles of savings, 
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investments, prudent management and how the stock market operates and reflects the 
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national economy. The Secretary of Education shall determine how to incorporate such 
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component in the existing curriculum for high school students. 
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SEC. 9. Implementing Rules and Regulations - Within 120 days from the 
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effectivity of this Act, the Commission and the Bureau of Internal Revenue, in 
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consultation with other stakeholders including The Philippine Stock Exchange. Inc., shall 
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promulgate the implementing rules and regulations of this Act. 
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SEC. 10. Effect on Existing Law and Repealing Clause - All laws, decrees, 
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orders, rules and regulations, or parts thereof inconsistent with this Act are hereby 
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repealed or amended accordingly. 
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SEC. 11. Separability - Should any provision of this Act be declared 
IS 
unconstitutional, any other provision not affected tliereby shall remain in full force and 
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effect. 
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SEC. 12. Effectivity Clause - This Act shall take effect fifteen (15) days from the 
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date of its publication in at least two (2) newspapers of general publication in the 
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Philippines. 
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Approved, 
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