FINANCE Secretary Cesar Purisima was right when he said that the ruling issued by the Bureau of Internal Revenue (BIR) requiring the submission of an alphabetical list of recipients of dividends won’t cause foreign capital flight. He gave the assurance in reaction to concerns that such disclosure could drive away foreign investments from the stock market.
Full disclosure is a necessary tool in attracting both local and foreign investors to the equities market—even if their placements in listed shares do not create employment but only benefit the sellers, who naturally unload their holdings either to make profit or to cut losses. Without full disclosure, the public won’t have any reason to trust the majority stockholders, who are usually members of the same family and who are privy to anything taken up inside the boardroom.
Purisima’s pronouncements may have rescued BIR Commissioner Kim Henares from possible public outrage amid fears the regulation could hurt the market. Nevertheless, the finance chief deserves a chance to prove he was right in fully supporting his subordinate. After all, Henares, assisted by BIR people particularly the agency’s collectors, shoulders the burden of going after tax cheats, although she has not said anything to the effect that the disclosure of the recipients of dividends and other income is one of the measures that would efficiently reduce, if not totally eradicate, tax evasion.
Henares’ dividend disclosure rule may be welcome news to the public who rely only on disclosures for investment decisions. In a way, it could help “boardroom outsiders” in identifying the beneficial owners of shares held by PCD Nominee Corp. But why single out the stock market?
While the public may not expect any response from Henares, Purisima, meanwhile, justified the BIR’s dividend disclosure rule. But he was wrong in citing the “robust performance” of the stock market to justify his subordinate’s imposition. If he owns said description, then he has to clarify what he meant by the adjective “robust” when he applied it to the market. Was the market’s performance “robust” because the Philippine Stock Exchange index (PSEi) remains in7,000-point territory? Was the market robust because the BIR’s latest rule on stock trading did not cause capital flight as earlier feared by some business sectors?
Purisima was right when he cited the continued inflow of foreign portfolio money into local stocks. But he did not tell the public that foreigners are here to stay because they invest for profit. It is true that foreign funds stay despite the dividend rule. They could not possibly leave and take their money elsewhere because of the deterioration in the US dollar-Philippine peso exchange rate. With the dollar getting costlier at P44 each, foreigners who came in in 2011 would lose between P2 and P3 per dollar invested.
The finance chief is right that there has been no capital flight. But sad to say, this is despite the BIR’s dividend rule because foreign funds invest in local equities for speculation and potential dividends. Those who could not stand the BIR’s imposition did not abandon the market but chose to sell for profit despite the surge in the PSEi to above the 7,000-point level.
After all, PSEi, which is the market’s main barometer, is not a measure of foreign investor confidence.
Has Purisima not reviewed the weekly market summaries on the Philippine Stock Exchange website? If he did, he would have noticed the report on the movement of foreign funds. From October 6 to October 10, foreigners sold more—P23.4 billion and bought less—P14.9 billion, for net foreign selling of P8.5 billion. In the following two weeks, they sold P37 billion worth of stocks and bought P24 billion from October 13 to 17 for net selling of P13 billion, and sold P16.3 billion against buying P16.7 billion from October 20 to 24 for net foreign selling of P393 million.
This was how the stock market performed in October that Purisima cited to justify the BIR’s issuance of the dividend disclosure rule. Yes, there was no capital flight. But what do the net foreign selling figures mean to him? Is this a simple case of unloading or foreigners’ fear of something that only Purisima, Henares and Malacanang occupants, led by their chief, know?