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SEC optimistic to compete regionally, despite 20% STT
DESPITE the approval of the 20-percent hike in STT, or stock transaction tax, the Securities and Exchange Commission (SEC) remains optimistic it can compete against its regional peers. The increase will “affect” local equities, all right, it admitted, but said it believes foreign investors are unlikely unnerved given the country’s good economic forecasts.

“It will really affect the market because there will be a little increase in transaction cost,” Teresita Herbosa, chairperson of SEC, told The Manila Times. “Now, if you, however, couple that with good regulations from our end, then we maintain the integrity of the market. You know, investors, I think, especially the institutional investors, won’t mind the increase as long as the market is fair and transparent.”

Included in the first package of the government’s comprehensive tax reform program, dubbed Train, or Tax Reform for Acceleration and Inclusion, the STT aims to raise transaction tax to 0.6 percent from the existing 0.5 percent, or by 10 basis points (bps) higher to 60 bps from the current 50 bps.

“If we talk about foreign investors, they have other considerations when they come and invest, especially institutional investors,” Herbosa said. “Their main preoccupation, I’d like to think, would be the sustainability of our corporations, their level of good corporate governance, their commitment to environmental protection. If that is their way of thinking how the investment should go, so I think foreign investors, in fact, are more willing to invest, despite the increase in STT.”

She also said the SEC welcomes the amendments in the tax reform system “because, overall, it’s really aimed at the acceleration of economic development and financial inclusion, and if this will generate more activity in the market, then that will also be good for us as regulators.” She stressed, “Even the increase in STT, as I said, if that would answer for the agencies like SEC, to be able to be given sufficient resources to regulate the markets for the good of everyone, then that’s money or taxes generated for a good purpose.”


SEC Chairperson Teresita Herbosa

The Philippine Stock Exchange, however, bucked the plan, saying it would make the local market “uncompetitive” against regional peers. Ramon Monzon, president of PSE, told a news conference earlier the existing 50 bps STT was already the highest in the region. “What we have to understand is the Philippine Stock Exchange does not operate in the local market alone,” he explained. “We really compete with the other exchanges such as those in Thailand, Malaysia, Indonesia, and Vietnam. We compete for the money of the foreign investors.”

Malaysia’s bourse charges only 30 bps in stock transactions in the form of stamp duty, while the exchanges of Hong Kong, Vietnam, and Indonesia only slap a 10-bps tax. Singapore does not impose any STT. “When you’re increasing the transaction tax, you’re increasing the transaction cost,” Monzon explained. “As it is right now… the transaction tax is already the highest in the region.” He said policymakers and legislators should be conscious of what global and regional peers do as foreign investors would always invest in countries where transaction cost is less. “If you are to add the transaction cost, we become very uncompetitive with the other stock exchanges,” he added.

More investors
As a way of enticing more investors, the SEC has moved to double the MPO, or minimum public float, requirement of listed companies from the existing 10 percent. This means that public firms should issue at least 20 percent of outstanding shares that will be freely traded in the local market. It first imposed the 20-percent requirement to new IPOs, or initial public offerings. “We already came out with a final circular saying for new IPOs beginning the date of publication should already have a float of 20 percent, and if within a 12-month period that float decreases, they have to take measures to bring it up again to a minimum of 20 percent,” Herbosa said.

The objective here, she explained, is for the investors, especially the retail ones, to have a wide variety of investments because the SEC only has equities, then it has bonds—divided into government securities and corporate bonds. “In equities, we only have 270 listed companies, more or less, and if some are dormant and if investors are really picky… they would like, naturally, to be less speculative and trade in stable, sustainable companies with good financial condition,” she said. “So, if you’re limited only to a number of companies… it would be best that these people who are interested in investing would have more shares out there for retail investors.”

No circular has yet been imposed against existing firms, as studies showed about 66 existing ones are to be affected by the doubling of MPO. “But we will have to tackle that sooner or later because we cannot also sacrifice the liquidity of the market [just]because of a few companies that are not that popular and whose shares are not well-traded,” Herbosa said. “We also want them to come up with measures on their own on how to stay listed, despite their very low MPO and, at the same time, we are also thinking of how to deal with the inevitability that we may have to delist some if they cannot increase…”

The dormant ones have reportedly objected on fears that nobody might be interested in buying their shares. But if noncompliance extends beyond 12 months, the SEC will be inclined to remove them forecefully from the roster of publicly-listed firms.The SEC is targeting to issue the memorandum for existing firms by mid-2018. “We’re not ignoring market conditions,” Herbosa said. “Maybe we will give it until the middle of next year, although I can honestly say that I’ve been reading some forecasts and they have a good prediction also for the market, so maybe before the mid-year next year.”

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