Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila
NINETEENTH CONGRESS
Second Regular Session
H6UsEB|LLNo.   8958
Introduced by REP. JOEY SARTE SALCEDA
AN ACT
INSTITUTING REFORMS TO ENHANCE THE EFFICIENCY AND DYNAMISM OF
THE PHILIPPINE CAPITAL MARKETS, AMENDING FOR THE PURPOSE SECTIONS
24, 24, AND 127 0F THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED
EXPLANATORY NOTE
This measure aims to boost the capital markets and the investment competitiveness of
the Philippines, and create parity in the tax treatment of debt and stock securities by instituting
the following:
(1 ) Reduction of the stock transaction tax from 0.6% to 0.1 %;
(2)  Imposition of the debt transaction tax of 0.1 %,  except for government securities;
and
(3) Reduction of the dividends tax to non-resident aliens from 25% to 10% to harmonize
the cash and property dividends rate.
The rationale for these amendments is as follows:
(1)  Immediate  Reduction  Of the  stock  transaction  tax from  0.6%  to  0.1%.  The
Philippines currently imposes the highest stock transaction levies among all major economies
in the ASEAN. As a result of this and other factors, the Philippine Stock Exchange index is
also the worst performing stock market index among all ASEAN-6 countries. Reducing this to
0.1 % will result in a reduction in revenues by P6.763 billion.
This has adverse effects on the strength of the country's pension and health insurance
systems, because the Social Security System and the Philippine Health Insurance Coaporation
charters have strict investment policies that limit their equities exposure almost exclusively to
Philippine index stocks.
It  also  affects  the  capacity  of  Philippine  companies  to  raise  money  through  the
Philippine markets. In part because of high transaction costs, the Philippine Stock Exchange


has the fewest listed companies of all ASEAN-6 economies, with just 275 listed companies,
with the second lowest already being Singapore, with some 640 listed companies.
Number of listed companies
`-..``-`--`-:
Since the stock transaction tax was increased from 0.5% to 0.6% of transaction value,
the PSEi has declined by 29.83%.
(2)  Reduction  of the  dividends  tax  to  non-resident  aliens from  25%  to  10%  to
fo¢r"o#I.zc ffoe c¢sfo ¢"dprapcrty di.tJi.de#ds rofc. Along with the stock transaction tax, higher
dividends taxes on non-resident aliens discourage foreign buying of Philippine stocks, which,
in  turn,  prevents  price  discovery.  As  a result,  Philippine  stocks  stagnate  in  value.  In  fact,
monthly transaction volume continues to be lower than 2012  levels in peso terms.  In dollar
terms, it matches 2007 levels. Reducing this to harmonize rates to 10% will result in a reduction
of                               revenues                                by                                P5. 097                                billion.


Monthly PSE transaction value (in  USD  million)
6000.0
5000.0
4000.0
3000.0
2000.0
1000.0
0.0
:-:    ----   i   -i    i   I----i    ----i     --.I-`i.   -i     -i      ------      :      -:-.   TI .-----i  `   :      -=-.-.
/3/ Jmpos!.fl.oH a/£foe dcbf fr¢Hs¢cft.o# fm]c - To promote parity between stock and debt
instruments as means of capitalization, this measure imposes a debt transaction tax at a rate of
0.1 % of the gross selling price of the instrument, in parity with the stock transaction tax. The
measure will raise revenues by P2.035 billion.
The refomi will result in a revenue loss of P9.825 billion, but will increase pension
assets in the SSS and GSIS alone by at least P72.9 billion.
In view of the foregoing, the approval of this bill is urgently sought.


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila
NINETEENTH CONGRESS
Second Regular Session
HbusEB|LLNo.8958
Introduced by REP. JOEY SARTE SALCEDA
AN ACT
INSTITUTING REFORMS TO ENHANCE THE EFFICIENCY AND DYNAMISM OF
THE PHILIPPINE CAPITAL MARKETS, AMENDING FOR THE PURPOSE SECTIONS
24, 24, AND 127 0F THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED
SEC.  1. Sfeor/ fz.//e. -This Act shall also be known as the "Capital Markets Efficiency
Promotion Act."
SEC.  2.  Section  24  of the National  Internal  Revenue  Code,  as  amended,  is  hereby
further amended to read as follows:
"SEC. 24. Income Tax Rates. -
(A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of
the Philippines. -
XXX
(8) Rate of Tax on Certain Passive Income: -
(1) Interests, Royalties, Prizes, and Other Winnings.
XXX
(S)   FINAL TAX ON LISTED AND TRADED DEBT INSTRUMENTS.  -AL
FINAL TAX AT THE RATH 0F ONE-TENTH 0F ONE PERCHNT (1/10
0F  1%)  OF  THE  GROSS  SHLLING  PRICE  OR  GROSS  VALUE  IN
MONEY   0F   THE   DEBT   INSTRUMHNT   OR   SECURITIES   SOLD,
BARTERED, HXCHANGED, OR OTHERWISE DISPOSHD  SHALL BE
LEVIED, ASSESSED, AND COLLECTED ON EVERY SALE, BARTER,
EXCHANGE,  OR  OTHER  DISPOSITION  0F  DEBT  INSTRUMENTS


AND  OTHER  SHCURITIHS,  LISTED  AND  TRADED  THROUGH  A
LOCAL  EXCHANGE  0R  AN  ORGANIZED  MARKETPLACE,  AND
SHALL  BE  PAID  BY THE  SELLER 0R TRANSFEROR:  PRoylDED,
THAT    DEBT    INSTRUMENTS     ISSUED    BY    THE    PHILIPPINE
GOVERNMENT  SHALL  BE  EXEMPT  FROM  THE  TAX  IMPOSED
HEREIN. „
SEC.  3.  Section  25  of the National  Intemal  Revenue  Code,  as  amended,  is  hereby
further amended, to read as follows:
¢6SEC . 25 . Tax on Nonresident Alien Individual . -
(A)  Nonresident Alien Engaged in trade or BLisiness Within the Philippines. -
//) J77  Gc77€crc7/.  - A nouresident alien individual engaged in trade or business in
the  Philippines  shall  be  subject  to  an  income  tax  in  the  same  manner  as  an
individual  citizen  and  a  resident  alien  individual,  on  taxable  income  received
from all sources within the Philippines. A nouresident alien individual who shall
come to the Phihppines and stay therein for an aggregate period of more than one
hundred   eighty   (180)   days   during   any   calendar   year   shall   be   deemed   a
'nouresident alien doing business in the Philippines'. Section 22 (G) of this Code
notwithstanding.
(2) |Cash and/or Property Dividends from a Domestic Corporation or Joint Stock
Company,   or  Insurance   or  Mutual  Fund  Company  or   Regional   Operating
Headquarter  or  Multinational  Company,  or]   Share  in  the  DistribLitable  Net
Income  of a  Partnership  (Except  a  General  Professional  Partnership),  Joint
Account,  Joint  Venture  Taxable  as  a  Corporation  or  Association,  Interests,
Ro};cz//z.cs,  Prj.zc's,  cz77c7 0f/7c;'  7yz.7!J7j./7gr.  - [Cash and/or property dividends from a
domestic corporation,  or from a joint  stock company,  or from  an insurance or
mutual fund company or from a regional operating headquarter of multinational
company, or t]The share of a nonresident alien individual in the distributable net
income after tax of a partnership (except a general professional partnership) of
which he is  a partner,  or the share of a nonresident alien individual  in the net
income after tax of an association, a joint account, or a joint venture taxable as a
corporation of which he is a member or a co-venturer; interests; royalties (in any
form); and prizes (except prizes amounting to Ten thousand pesos (P 10,000.00)
or less which shall be subject to tax under Subsection (8)(1 ) of Section 24) and
other winnings (except winnings amounting to Ten thousand pesos (P 10,000.00)
or less froml Philippine Charity Sweepstakes Office (PCSO) games which shall
be exempt); shall be subject to an income tax of twenty percent (20%) on the total
amount  thereof: Prow;.c7cd,  /]owciJcr,  That  royalties  on  books  as  well  as  other
literary works, and royalties on musical compositions shall be subject to a final
tax  of ten  percent  (10%)  on  the  total  amount  thereof: Provz.c7cc7, ./izr/fecr,  That
cinematographic  films  and  similar  works  shall  be  subject  to  the  tax  provided
under Section 28 of this Code: Pro+'i.decJ, /itrf/tc„77o7e, That interest income from
long-term deposit or investment in the form of savings.  common or individual
trust  funds,  deposit  substitutes,   investment  management  accounts  and  other
investments  evidenced  by  certificates  in  such  form  prescribed by  the  Bangko


Sentral  ng  Pilipinas  (BSP)  shall  be  exempt  from  the  tax  imposed  under  this
Subsection:  Provided,  finally,  That  should  the  holder  of the  certificate  pre-
terminate the deposit or investment before the fifth (5th) year, a final tax shall be
imposed  on  the  entire  income  and  shall  be  deducted  and  withheld  by  the
depository  bank  from  the  proceeds  of  the  long-term  deposit  or  investment
certificate based on the remaining maturity thereof:
Four (4) years to less than five (5) years - 5%;
Three (3) years to less than four (4) years -12%; and
Less than three (3) years - 20%.
/3/ Cczpz./cz/ G¢j.#s.  - Capital gains realized from sale, barter or exchange of shares
of stock in domestic corporations not traded tlirough the local  stock exchange,
and real properties shall be subject to the tax prescribed under Subsections (C)
and (D) of Section 24.
(8)  Nonresident Alien Individual Not  Engaged in Tr(lde or  Business Within the
Pfez./z¢pz.7tes.- There shall be levied, collected and paid for each taxable year upon
the  entire  income  received  from  all  sources  within  the  Philippines  by  every
nonresident   alien   individual   not   engaged   in   trade   or  business   within   the
Philippines  as  interest,  cash  and/or  property  dividends,  rents,  salaries,  wages,
premiums, annuities, compensation, remuneration, emoluments, or other fixed or
determinable annual or periodic or casual gains, profits, and income, and capital
gains,  a tax  equal  to  twenty-five percent (25%)  of such income.  Capital  gains
realized by a nonresident alien individual not engaged in trade or business in the
Philippines from the sale of shares of stock in any domestic corporation and real
property shall be subject to the income tax prescribed uiider Subsections (C) and
(D) of Section 24."
XXX
"(IT)   CASH   AND/OR   PROPERTY   DIVIDENDS   FROM   A   DOMESTIC
CORPORATION  OR  JOINT  STOCK  COMPANY,  OR  INSURANCE  OR
MUTUAL       FUND       COMPANY       OR       REGIONAL       OPERATING
HEADQUARTER       OR       MULTINATIONAL       COMPANY       OF       A
jvoIVREsiDEIvr JrvDJPTD I+H£. CASH AND/oR pRopERTy DlvlDENDs
FROM  A  DOMESTIC  CORPORATION,  OR FROM  A  JOINT  STOCK
COMPANY,    OR    FROM    AN    INSURANCH    0R    MUTUAL    FUND
COMPANY 0R FROM A REGIONAL  OPERATING  HEADQUARTER
0F MULTINATIONAL COMPANY TO A NONRESIDHNT INDIVIDUAL
SHALL BE SUBJECT TO AN INCOME TAX OF TEN PERCENT (10%)
ON THE TOTAL AMOUNT THEREOF."


I           ,                .I        C
SEC.  4.  Section  127  of the National  Internal  Revenue Code,  as  amended,  is hereby
further amended to read as follows:
"S;EC. \2:] . Tax on Sale, Barter or Exchange of Shares Of Stock Listed and Traded
through the Local Stock Exchange [or through Initial Public Offering] . -
(A)  Tax  on  Sale,  Barter  or  Exchange  Of Shares  Of Stock  Listed  and  Traded
/forowgfe /fee foca!/ S/ocfrExcfecz#ge. -There shall be levied, assessed and collected
on every sale, barter,  exchange,  or other disposition of shares of stock OF A
DOMESTIC  CORPORATION  listed  and  traded  through  the  local   stock
exchange,   OR   LISTED   AND   TRADED   IN   BOTH   A   LOCAL   AND
FOREIGN STOCK EXCHANGE, other than the sale by a dealer in securities,
IN LIEU 0F CAPITAL GAINS TAX, a tax at the rate of [six-tenths] ONE-
TENTH of one percent ([6/10]  1/10 of 1%) 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"
Approved,