The Philippine Stock Exchange (PSE) has submitted to the House of Representatives a bill meant to encourage private firms to join the bourse.

In a statement sent at the weekend, the PSE said the bill, dubbed as the Stock Market Competitiveness Act (SMARTCA), was introduced as House Bill No. 7111 by Congressman Exequiel B. Javier, chairman of the House Committee on Ways and Means.

There will be no more time to discuss the bill, however, as Congress is set to end sessions ahead of the election campaign.

Mr. Javier said in an interview that should he win another term, he would refile the bill when Congress resumes sessions in June.

SMARTCA, he said, will not undergo a public hearing yet because there are only 10 days left before the 14th Congress ends.

Outgoing PSE President and Chief Executive Officer Francis Ed. Lim said: “We welcome with much appreciation this legislative development because of the urgent need to develop our stock market.

It is unfortunate that even if we are one of the oldest bourses in Asia, we continue to lag behind ... in terms of market capitalization, number of listed companies, value turnover and capital raising activities.”

“Our size as a market is a major deterrent to our competitiveness in the region,” he added.

SMARTCA has been described by the exchange as a “revolutionary bill” that will revamp the tax system for the stock market. This, it claimed, would “arrest [the local bourse’s] marginalization in the regional market.”

The main features of the bill are a lower income tax rate of 25% instead of 30% for a period of 10 years for companies that would list their shares with the stock exchange within a period of five years from the effectivity of the law.

The bill also removes the initial public offering or IPO tax, and reduce the stock transaction tax to a quarter of 1% from the present rate of one half of a percent.

“On a global perspective, the flow of funds into the Philippines is inhibited by the high cost of investing in the Philippine market,” Mr. Javier said, noting that the country is one of the most expensive markets among the 47 global exchanges in terms of trading costs.

The country, he said, also charges the highest taxes on investors due to the stock transaction tax rate of one half of 1% of gross value traded. “Lowering the cost of trading will not only encourage foreign investments but attract as well the remaining segments of the Filipino population to participate in stock market investing,” Mr. Javier said.

The Philippine stock market has a very shallow investor base with less than half of 1% of the population investing in the stock market.

Aside from these prohibitive costs, the PSE said the small number of listed companies available for trading has also prevented the growth of the stock market.

An average of only four companies joined the bourse every year since 2004, significantly lower than the 15 to 29 average new listings per year in Indonesia and Thailand during the same period.

Furthermore, the Philippines is the only jurisdiction in Asia that imposes an IPO tax of as high as 4% of the capital to be raised.

“It is fair that only those who meaningfully contribute to the development of the market should benefit from the incentives granted by the bill,” Mr. Lim said.

Mr. Lim also said the government stands to benefit from increased listings in the stock market through higher revenue collections.

A 2007 study showed that corporate income taxes paid by listed companies to the government reached P81.5 billion, representing 34% of the total corporate income tax collections of the Bureau of Internal Revenue (BIR).

Ironically, the figures were gathered from 234 listed companies which represent only 0.06% of the potential tax base of the BIR of about 371,000 registered corporate taxpayers.

Source: http://www.bworldonline.com/main/content.php?id=5101