House considers fewer tax cuts under capital market reform measure

THE House of Representatives ways and means committee wants to trim the revenue loss from a capital market reform bill it approved in March to P18 billion from more than P30 billion yearly by limiting the tax cuts to stock transactions.

Albay Rep. Jose Ma. Clemente S. Salceda, who heads the panel, said they are open to amending the House-proposed Capital Markets Efficiency Promotion Act by only lowering the stock tax to 0.1% from 0.6%.

They might also keep the proposed 10% tax on dividend income when they meet with their Senate counterparts for a bicameral conference committee, he told BusinessWorld in a Viber message at the weekend.

“We are considering a leaner version, focused solely on capital market provisions,” the congressman said. “The revenue impact will be much lower, at about P12 billion to P18 billion per year.”

“We are already providing inputs to the Senate committee on ways and means so that we have as little disagreement as possible when we meet as a bicameral committee. The focus will be on the stock transaction taxes and dividends,” he added.

The House in March approved on third and final reading House Bill No. 9277, a priority measure that seeks to reform the capital markets by reducing taxes on stock transactions. The bill has been transmitted to the Senate, where it is being heard by the ways and means committee.

The Department of Finance this month told the Senate panel that the House version could lead to foregone revenue worth P140 billion in the next four years.

The House bill also halved the tax on lotto ticket sales and winnings to 10% and exempted insurance policies worth less than P100,000 from documentary stamp tax, while levying a P200 tax on policies worth more than P1 million.

The government could lose up to P38 billion from lowering taxes on lottery winnings and ticket sales and P71.62 billion from reducing the tax on insurance policies in the next four years, according to a Finance department presentation.

Mr. Salceda said he is also open to including excise taxes on pickup trucks, which could net the government about P30.1 billion up to 2028.

“I am also very amenable to neutralizing the revenue impact through the excise tax on pickup trucks. It was a policy misstep and it’s time to correct that tax exemption,” he added.

The House committee is also working with its Senate counterpart to include a provision providing tax incentives to companies with a “corporate pension plan.” “We are also hammering out a provision that will establish a tax-free, incentivized corporate pension scheme.”

“This is on top of the Social Security System,” he said, adding that the move would boost the capital markets and create wealth for the working class.

The government could offset foregone revenue through increased transactions in the domestic capital markets, which could be enough to compensate for the losses, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a Viber message. 

The state should look at improving its tax administration and collection to help minimize revenue losses from the reform bill, he added.

The government should instead streamline investments in Philippine industries instead of cutting taxes on stock transactions if it wants to boost capital markets, Jose Enrique “Sonny” A. Africa, executive director at think tank IBON Foundation, said in a Viber message.

“There’s a problem with the notion that cutting taxes on stock transactions is the key to boosting capital markets and investment competitiveness,” he said.

“It will just further incentivize financial speculation over productive investment and, correspondingly, do little to address the real economic problems of poverty, hunger, joblessness and inequality in the country,” he added.

He also said providing tax incentives to companies with corporate pension plans would only benefit about 5% of the Philippine workforce, adding that the state should look at hiking wages for the working class.

“Tax incentives for corporate pension plans will ultimately benefit corporations more than workers.”

“If the government is serious about pension reforms, it should strengthen public pension systems to be more universal and with larger benefits, giving decent retirement incomes to all workers,” Mr. Africa said. “It should also improve social services, especially healthcare, to give retirees more security in their old age.” — Kenneth Christiane L. Basilio