DST Documentary Stamps update and comparison

The PSE's laudable plan to reduce transactions charges incurred by the buying and selling of Philippine stocks took a turn for the worse.  The PSEi was enjoying a 5 year suspension of DST that would have been charged on every buy slip on local equities.  They were just lobbying for the for further reduction in friction or slippage (or transaction costs) by lowering Sales Tax in half, when the 5 year moratorium on DST expired and the request to lower sales TAX was denied.

Stock market investors pay various fees aside from taxes: a broker’s commission ranging from up to 1.5% of the transaction cost plus VAT to a low of .25 of 1% of the transaction cost plus vat, transfer fee of P100 plus VAT, cancellation fee of P20 plus VAT, and the minimal clearinghouse fee of 0.0001 multiplied by the value of transaction.

In 2004, Congress passed Republic Act 9243 which "rationalized" the DST structure and suspended the DST on stock transactions for five years.

Senate Bill 2497 filed by Senator Edgardo J. Angara sought the DST’s permanent removal, while SB 3006 filed by Mr. Lacson called for a three-year extension.  The latter being the version of what the Finance Department is leaning towards agreeing to.

On a Senate hearing on the ways and means committee last February 2009, Senator Lacson stated that, “the [dst] tax was very cumbersome to compute. Even the Finance department and Philippine Stock Exchange cannot agree on the amount in terms of foregone revenue. Second, it made the stock exchange uncompetitive because it was like a second tax on top of the stock transaction tax,” Lacson said.

Based on the Department of Finance computation, the government stands to lose some P1.3 billion while the PSE computation showed a loss of P1.09 billion if the documentary stamp tax is removed.

On the other hand, Lacson noted PSE executives who attended the hearing said the economy would lose much more if investors were turned off because of the tax.

Last March 16, 2009, the House of Representatives has approved on third and final reading a bill permanently exempting the sale, barter or exchange of shares of stock listed in the stock exchange from documentary stamp tax (DST). House Bill No. 4900, principally authored by Aurora Rep. Juan Edgardo M. Angara, was approved before the House went into recess on March 6 for its month-long Lenten break.

Senators, however, kept the stock transaction tax at 0.5% of the value of the transaction, which is charged in lieu of the capital gains tax, as well as the 12% value-added tax (VAT). The PSE wanted the stock transaction tax cut by half.  This was otherwise known as the Sales TAX.

It was disclosed by the PSE that they were working out a deal with the finance dept to remove doc stamps even after mar 20 before the bill 4900 becomes a law, but the Finance department had warned against the permanent removal of the DST on market transactions, with director for planning and fiscal policy Teresa S. Habitan pointing out that as of 2007, the temporary suspension of the DST on stock transactions cost the government P1.4 billion in foregone revenues.

I think that they are short sighted in this view, as a market without doc stamps will spur more volume and give them more sales tax in the long run.

The Finance department is agreeable only to a three-year extension of the law, which has expired on March 20, 2009.

Deliberations in the House and the Senate on the DST bills will resume on April 13. 

The Philippines has the highest transaction cost for transfer of shares as compared to Hong Kong, Thailand and Singapore,” Sen. Edgardo Angara, banks committee chairman, pointed out. 

 

OLD WAY OF COMPUTING

The documentary stamp tax is charged to the buyer on every purchase transaction at the rate of P1.50 for every P200.00 par value of the stock being transferred or a fraction thereof.

  [(100,000 shares x P1.00) x P1.50]  


       200

 

 

     

*short cut formula: (# of shares) x (par value) x .0075 = DST

For the example of MEGaworld at .56, par 1, buying of 100,000 shares, the old way would yield 750 pesos worth of DST.

In the year 2003, The Documentary Stamp Tax Bill 2158 authored by then Senator Ralph Recto reduced the DST by almost half (computation below), but was short lived due to the suspension of DST altogether for fiver years since Feb 2004.

NEW WAY OF COMPUTING 2009

The documentary stamp tax is charged to the buyer on every purchase transaction at the rate of Php0.75 for every Php200.00 par value of the stock being transferred or a fraction thereof. 

  [(100,000 shares x P1.00) x P.75]  


       200

         

*short cut formula: (# of shares) x (par value) x .00375 = DST 

 For the example of MEGaworld at .56, par 1, buying of 100,000 shares, the new way would yield 375 pesos worth of DST.

In conclusion, I think the whole notion of Documentary Stamp Taxes is skewed.  By definition, documentary tax stamps were intended for use on documents representing financial transactions.  In layman's terms, this is tax imposed to pay for the "processing of papers".  

Here in the Philippines, it is distorted two ways.

  1. the amount of doc stamps you pay will increase as the amount of shares you purchase also increase, even though buying 1 share or buying 1 million shares both cost the same to process.
  2. the amount of doc stamps you pay will increase if the stock price at the board is trading below par value, even though it costs the same to process.

I propose that we stick to the true nature of doc stamp charging, which is a simple charge to process paperwork.  So why can't we instead impose a flat fee of 50 pesos per every buy slip order, regardless of par value or number of shares?  The reason is money.  Revenue.  Increase DST to increase collection.  And that in effect doubles your transaction charges as the sales tax already serves this purpose.  This is the very same double tax, or tax upon tax, that Senator Ping Lacson was referring to.

 

Comments

  1. Shon Cary says:

    If you do it right, you will reap the benefits of debt consolidation. You get back lower monthly payments and an enhanced feeling of financial stability. If you want to get debt consolidation done, find out if there’s a way for you to take out one big loan to pay back your current total debt. Make the decision and start the road to financial stability today.

  2. prometheus says:

    Well what can you do? We are living in a world of stupid people?

  3. Whipsaw says:

    Let me echo prometheus’ observation… “Well what can you do? We are living in a world of stupid people.” The meat of the DST issue reduced into 14 words, 2 sentences. Bravo!

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