The Department of Finance (DoF) said on Monday that the House of Representatives’ version of a capital markets reform bill could result in a reduction in government revenues of £140 billion over four years, reducing available budgetary space would be further limited.
Deputy Secretary of Finance Karlo Fermin S. Adriano said the DoF is open to reducing taxes on stock transactions from 0.6% to 0.1% and lowering the dividend tax rate for non-resident investors.
Nevertheless, he urged lawmakers to consider the fourth package of the DoF’s Comprehensive Tax Reform Program, adding that the changes in the House’s proposed Capital Markets Efficiency Promotion Act (CMEPA) have already been incorporated into the legislation submitted by the DoF. The DoF version could raise about $10.76 billion, he said.
“The DoF recognizes the intent of the proposed CMEPA, but we are already pursuing similar objectives through the Passive Income and Financial Intermediary Taxation Act (PIFITA),” he said in a Senate hearing.
“We are now OK with reducing the share transaction tax from 0.6% to 0.1%… we are (also) OK with reducing dividends, especially for non-residents, who are also covered by the CMEPA” , he added.
CMEPA and PIFITA are among the legislative priorities outlined by President Ferdinand R. Marcos Jr. for the 19e Congress. The House passed both bills on final reading, while the Senate versions remain at the committee level.
“Given that we are still in a tight spot right now fiDue to our position of scale, we hope that we can push for Package 4 instead of CMEPA, especially since many of the capital market provisions in CMEPA are also in Package 4,” said Mr. Adriano.
The DoF’s Package 4, formerly known as PIFITA, seeks to impose a flat 20% tax rate on interest income, including savings deposits, government bonds and bills, and corporate bonds, among others, according to Mr Adriano’s presentation to the tax panel.
The DoF’s fourth package also provides for a 5% gross income tax on the lending and non-lending activities of banks, loan investors and other financial intermediaries. It also proposes a 2% value added tax (VAT) on healthcare organizations and pension funds.
Sen. Sherwin T. Gatchalian, chairman of the Senate Ways and Means Committee, noted the DoF’s position on the measure and said the Legislative-Executive Development Advisory Council (LEDAC) is now pushing for capital market tax reforms instead of the more extensive PIFITA. .
House Bill (HB) No. 9277, or the CMEPA measure, seeks to reduce the tax on stock transactions from 0.6% currently to 0.1%. The measure also proposes to set the dividend tax rate for non-resident investors at 10%, while abolishing the 7% gross income tax on derivative profits by financial institutions.
It also reduced tax rates on lotto winnings above P10,000 from 20% to 10%. The House’s CMEPA version also exempted title insurance policies worth less than P100,000 from documentary stamp tax, while a maximum tax of P200 was imposed on policies worth more than P1 million.
The Senate version of CMEPA includes tax reforms for “the debt sector, bonds and debentures… and also for the entire insurance sector,” Mr. Gatchalian said, citing their interconnectedness with capital markets.
The DoF is open to working with the Capital Market Reform Act and asks Congress to amend the tax measure to make it “revenue neutral,” Mr. Adriano said.
He noted that the DoF was trying to add tax provisions that would make CMEPA revenue positive for the government. “We tried to put in place provisions… that actually gave us positive revenues, including the gross receipts tax on financial intermediaries and excise taxes on pick-up (trucks).”
“It is still not enough to counter CMEPA’s negative impact on revenues,” he added.
Mr. Gatchalian said the Senate version of the measure would only result in lost revenue of P78 billion, without reducing tax rates on the sale of lotto tickets and an excise tax on pickup trucks. “We have made some changes in recent weeks,” he added.
It would be easier for the Senate to pursue CMEPA because it is a “smaller bill” compared to PIFITA, he said, citing the need to expedite deliberations on capital markets reforms and passive income tax structures before the chamber begins with discussions on the proposed 2025 national budget.
“If you ask me personally, I would prefer to discuss the CMEPA in the coming months for two reasons: first, it is an easier bill to discuss because the components have few components and interact with each other are connected… and secondly, we can easily pass a smaller bill compared to a bigger bill,” he said. — Kenneth Christiane L. Basilio