Source: http://www.businessmaninvestor.com/2011/09/stock-exchange-tax-debateclarifying-of.html
Timestamp: 2019-01-18 09:45:58
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The Philippine Stock Exchange Tax Dilemma—Clarifying the ½ of 1% Stock Transaction Tax and the 5 to 10% Capital Gains Tax
Touching base with the rational business psyche of stock market investors
This is Part 1 of a Series.
The Bureau of Internal Revenue Main Building. While the ½ of 1% stock transaction tax is applied on the gross selling amount, the 5 to 10% capital gains tax is imposed on, well, just capital gains, and not on the whole gross selling amount.
There seems to have a revived stir among Philippine Stock Exchange (PSE) investors on the insistence of the Bureau of Internal Revenue (BIR)—with the backing of the Department of Finance (DOF)—that a 5 to 10% capital gains tax (CGT) be imposed for traded stocks of listed firms that failed to comply the PSE minimum public ownership (MPO) requirement of 10 to 33% (depending on the company's market capitalization). It has been revived particularly because of recent news articles (e.g. that one from the Philippine Daily Inquirer) having a seemingly confirming tone that this ruling is already scheduled for implementation.
Currently, the tax being imposed on traded stocks in the local exchange is the ½ of 1% stock transaction tax (STT). Consequently, most have initially perceived that the CGT, being 5 to 10%, immediately leads to higher tax costs because at first sight, it does indeed seem that way (5 to 10% > ½ of 1%).
Yet these assumptions should be clarified. Because while the STT is applied on the gross selling amount (i.e. Selling price x no. of shares sold), the CGT is actually applied only on capital gains (i.e. Gross selling amount – gross purchase amount)—that is, 5% on the first Php100k capital gains, and 10% on capital gains in excess of the first Php100k.
Let’s further delve on the application of these tax rules through an illustration. Let’s say I bought 100k Jollibee (PSE:JFC) shares at Php88. Later, I sold them at Php90. For this example, my gross selling amount should be Php9M (100k shares x Php90) with capital gains being Php200k (Php9M – Php8.8M). Using the STT, the tax due should be computed at Php45k (Php9M x ½ x1%). CGT, on the other hand, would result to a tax due of Php15k, i.e. Php5k for the first Php100k capital gains (Php100k x 5%) plus Php10k for capital gains in excess of the first Php100k (Php100k x 10%).
Surprisingly, in this case, the CGT (Php15k) is actually lower than the computed STT (Php45k). Continue to Part 2: BIR Tax Legality, PSE Administrative Impossibility, Logistical Burden, Illiquidity Tendencies
Posted by the Businessman Investor at 4:33 PM
Labels: Philippine Stock Exchange (PSE), Taxation
The information presented here is for educational purposes only. Under no circumstances should it be construed as a recommendation to buy, sell, or hold any stocks. If you choose to use this information, you do so at your own risk.
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Businessman Investor
MScM graduate of UA&P, and a personal banker in one of Canada's big five, he's been investing in the Stock Market since the Financial Crisis of 2008. Passing through its unending bear and bull cycles, he maintains a business perspective philosophy to exploit quality businesses selling at bargain prices. This blog has been inspired by that Buffett quote: "I am a better investor because I am a businessman and a better businessman because I am an investor."
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