Gov’t revenue seen taking hit from House capital reform bill

THE Department of Finance (DoF) said on Monday that the House of Representatives version of a capital markets reform bill could result in a P140 billion reduction in government revenue over four years, further limiting the fiscal space available.

Finance Assistant Secretary Karlo Fermin S. Adriano said the DoF is open to cutting stock transaction taxes to 0.1% from 0.6% and reducing the dividends tax rate for non-resident investors.

Nevertheless, he urged legislators to consider the DoF’s fourth package of the Comprehensive Tax Reform Program, adding that amendments contained in the House-proposed Capital Markets Efficiency Promotion Act (CMEPA) are already included in the DoF-submitted legislation. The DoF’s version, he said, could net about P10.76 billion.

“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 ways and means committee hearing.

“We are okay now with reducing the stock transaction tax from 0.6% to 0.1%… we are (also) okay with reducing the dividends particularly for non-residents, which is also covered by CMEPA,” he added.

CMEPA and PIFITA are among the legislative priorities outlined of President Ferdinand R. Marcos, Jr. for the 19^th Congress. The House approved both the bills on final reading while the Senate’s versions remain at the committee level.

“Given that currently we’re still in a tight fiscal position, we hope that we could push for Package 4 instead of CMEPA, especially that many of the capital market provisions in CMEPA are also found in Package 4,” Mr. Adriano said.

The DoF’s Package 4, formerly known as PIFITA, is seeking to levy a flat 20% tax rate on interest income, including savings deposits, treasury 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 receipts tax on banks, lending investors and other financial intermediaries’ lending and non-lending activities. It also proposes a 2% value-added tax (VAT) on health maintenance organizations and pension funds. 

Taking note of the DoF’s position on the measure, Senator Sherwin T. Gatchalian, who heads the Senate ways and means committee, said the Legislative-Executive Development Advisory Council (LEDAC) is now pushing for capital market tax reforms instead of the more expansive PIFITA.

House Bill (HB) No. 9277, or the CMEPA measure, seeks to cut stock transaction tax to 0.1% from 0.6% currently. The measure also proposes to set the dividend tax rate for non-resident investors to 10% while removing the 7% gross receipts taxes on derivative gains by financial institutions.

It also reduced tax rates on lotto winnings above P10,000 to 10% from 20%. The House’s CMEPA version also exempted property insurance policies worth less than P100,000 from documentary stamp tax while levying a maximum P200 tax on policies more than P1 million.

The Senate’s version of CMEPA includes tax overhauls to “the debt sector, bonds and debentures… and also the entire insurance industry,” according to Mr. Gatchalian, citing their interconnectedness to capital markets.

The DoF is open to working with the capital market reforms bill, requesting that Congress tweak the tax measure to make it “revenue neutral,” Mr. Adriano said.

He noted the DoF tried adding tax provisions that would make CMEPA revenue-positive for the government. “We tried to insert provisions… basically giving us positive revenue, including the gross receipts tax on financial intermediaries and excise tax on pickup (trucks).”

“It’s still not enough to counter the revenue negative impact of CMEPA,” he added.

Mr. Gatchalian said the Senate version of the measure would only result in P78 billion in foregone revenue, with no reduction in tax rates for lotto ticket sales and an excise tax on pickup trucks. “We made some modifications in the last few weeks,” he added.

It would be easier for the Senate to pursue CMEPA as it’s a “smaller bill” compared to PIFITA, he said, citing the need to expedite deliberations on reforms to the capital markets and passive income tax structures before the chamber begins discussions on the proposed 2025 national budget.

“If you ask me personally, I would prefer discussing CMEPA in the next few months for two reasons: one, it’s an easier bill to discuss because the components are only few and interrelated… and second, we can easily pass a smaller bill compared to a bigger bill,” he said. — Kenneth Christiane L. Basilio