No capital flight due to BIR alphalist – DOF

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Finance Secretary Cesar Purisima

Finance Secretary Cesar Purisima

Purisima defends BIR ‘alphalist’
The Department of Finance (DOF) said investor sentiment in the Philippines remains positive, contrary to criticisms made by the opposition that capital flight has resulted from a requirement of the Bureau of Internal Revenue (BIR) for companies to produce an alphabetical list of recipients of dividend income.

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In a statement issued to the media over the weekend, Finance Secretary Cesar Purisima said contrary to the capital flight ‘story’ peddled by parties that oppose the BIR’s Revenue Regulation (RR) 1-2014, which requires submission of the ‘alphalist,’ the stock market continues to show robust figures and none of the feared effects have materialized.

“Ten months since the amendment took effect, relevant indicators show that the regulation has produced none of the negative effects feared by investors,” Purisima said.

In January, the BIR issued RR 1-2014, which required withholding agents to submit an alphabetical list of payees on income payment, subject to creditable and final withholding taxes. The circular requires that withholding agents indicate in the alphalist the payees’ tax identification numbers, complete names, income amount and tax withheld.

However, on September 9, the Supreme Court stopped the BIR and the Securities and Exchange Commission (SEC) from enforcing the regulations by issuing a temporary restraining order (TRO).

The TRO was issued in favor of a petition filed by the Philippine Stock Exchange (PSE), the Bankers Association of the Philippines, Philippine Association of Securities Brokers and Dealers Inc., Fund Managers Association of the Philippines, Trust Officers Association of the Philippines and Marmon Holdings Inc.

The group also asked the High Court to declare the BIR regulation null and void because it said such measure discourages portfolio inflow and is likely to set back the Philippine capital market’s growth trajectory.

Contrary to the allegations, Purisima said data from the PSE showed robust figures, noting that the opposition to the BIR Revenue Regulation is not supported by facts.

The finance secretary noted that in fact, trading on the PSE remains in record territory; the monthly inflow of foreign portfolio investments has exceeded the outflow since April this year; and foreign trading in the PSE has increased as a share of total trading over the past few months.

“The facts simply do not support the undue fears being raised,” he said.

The DOF pointed to bullish stock market trading last week, when the Philippine Stock Exchange Index (PSEi) closed more than 10 points higher at 7,068.03, reflecting investor confidence in the local stock market.

Sentiment was positive even amid speculation that the US Federal Reserve may be raising interest rates, which would make US investment more attractive for currency speculators.

On Sept 8, the PSEi index breached the 7,300-point level, closing up 0.71 percent at 7,314.94, near its record high of 7,392.2 posted in May last year.

Monthly net foreign portfolio investments, which account for securities and other financial assets passively held by foreign investors, have been positive since April, registering $489.5 million net inflows in August alone, up by more than 200 percent year-on-year, the DOF said.

Furthermore, the DOF noted that the latest data showed that the year-to-date share of foreign to total trading on the PSE has improved to 51.09 percent as of August, from 49.82 percent a year earlier.

“Notably, the PSEi performance has held strongly, reflecting highly positive investor sentiment, despite recent tightening moves by the Bangko Sentral ng Pilipinas. Clearly, all these indicators do not demonstrate capital flight,” it said.

The DOF said it remains committed to developing the Philippine capital markets, and that BIR Revenue Regulation 1-2014 has resulted in transparency in the market.

“Further, as investments with certificates are already required to have the very same information RR 1-2014 asks for, there is no reason how investors’ privacy rights can be compromised by this regulation,” it added.

SEC Chairperson Teresita Herbosa stressed how the BIR Regulation amendment facilitates a transparent and professional market.

She explained that no privacy right by the investors is compromised since tax-paying investors have, all along, provided the information sought in that BIR Revenue Regulation.

“Only investors seeking to avoid taxes need to be concerned. As Philippine markets are getting more attractive, such regulations only serve to protect our investors. There is no reason for investors to leave an increasingly attractive market that seeks to be more transparent,” Herbosa added.

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