BIZ BUZZ: BBM vetoes thorny capital market law provisions

We’ve heard capital market regulators and regulated entities cheer the legislation of the Capital Markets Efficiency Promotion Act (CMEPA), which reduces the much-loathed stock transaction tax to 0.1 percent from 0.6 percent.

President Marcos aka BBM, however, did not adopt the framework of the Bilateral Conference Committee in its entirety. He used his line-item veto power on certain provisions, including one that would have removed the tax exemption of foreign investors’ income from their transactions with foreign currency deposit units (FCDUs).

We earlier wrote here about bankers’ concerns that if such tax exemption were removed, foreign currency bond issuers would pay more to make their investors whole. Simply put, cost of dollar-denominated borrowings would spike.

In a May 29 memorandum from the Malacañang obtained by Biz Buzz, Mr. Marcos agreed with capital market veterans’ view that the “long-recognized” exemption “has contributed to the country’s financial openness, foreign currency liquidity and capital market stability.”

The veto was thus “to ensure policy consistency and the continued effectiveness of the tax exemption for nonresident FCDU transactions,” he said.

A provision explicitly imposing the documentary stamp tax (DST) liability on bettors of Philippine Charity Sweepstakes Office games was also taken out.

“Our taxation treats the DST as an indirect tax, which can be passed on. Expressly imposing the tax burden on particular persons may undermine its neutrality and potentially affect revenues from legal gaming activities and the revenue collection of government agencies, which serve as a funding source for official programs,” Mr. Marcos noted.

Also, the tax exemptions of Philippine Guarantee Corp. were retained to support low-cost socialized housing.

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With these “refinements,” Mr. Marcos said the government was “able to balance the competitiveness of our capital markets and preserve fiscal stability, while averting unintended reversals.”

CMEPA “marks a significant milestone in our government’s broader fiscal reform agenda as it promotes a simpler, fairer and more regionally competitive tax system,” Mr. Marcos said.

All told, he commended the House and Senate leadership for passing what he described as a “long-overdue” and “transformative” measure.