A bill has been filed at the Senate that will allow the trading of derivatives and commodities as well as remove unnecessary tax impediments in recognition of the importance of having a vibrant stock market in helping push and sustain economic growth.

Senator Edgardo J. Angara said Senate Bill 3577 primarily proposes to enhance the regulatory environment that will allow the stock market to grow by taking out the unnecessary tax impediments that have only served to make the local market less competitive.

“While we charge one of the highest taxes globally for stock market trading, other markets have moved to minimize if not remove altogether any form of taxes on stock market trading such as the case in Thailand, Vietnam, Malaysia and Singapore,” Angara explained.

He also noted that a tax burden that is only unique in the Philippines is the initial public offering (IPO) tax that is charged on companies that want to raise capital from the stock market.

While government believes that it needs to tax as well for these private sector undertakings, other markets have actually introduced different tax incentives to attract more companies to go public,  Angara said.

These incentives have come in the form affording listed companies lower corporate income taxes once they are listed, subject to certain conditions.

“Encouraging more companies to list in the stock market can be an effective mechanism for improving government revenue collections. Data show that listed companies account for a sizable portion of the corporate income tax collections by the Bureau of Internal Revenue (BIR),” Angara said.

SB 3577 also recognizes the need to update tax systems to properly address the need to provide more hedging instruments in the market that have become more and more essential to attract more investors to pour their money in the market.

It is for this reason that the bill introduces a tax framework, which is loose if not absent altogether under current tax laws, to make derivatives and commodities trading viable, said Angara.

These derivatives instruments will allow investors more flexibility in their trading strategies. The bill attracts these instruments to become traded in the exchange so as to subject them to stringent rules and guidelines and minimize counterparty risks.

“To improve the stock market, there is a need to institute reforms that will allow future generations to sustain the momentum that will hopefully be triggered by this bill. It is for this reason that the bill also proposes to make mandatory the incorporation of financial literacy subjects in the high school and college curricula,” Angara concludes.

He lamented that the country's capital market continuously lags behind its Asian neighbors and not even one half of the country's population invests in the stock market. When compared with the level of participation in other economies, which range from 10-30 percent in Hong Kong, Malaysia and Singapore, this figure becomes alarming.