The stock transaction tax will increase beginning January 2018 as part of the approved tax reform approved by Pres. Rodrigo Duterte.
The government’s tax reform program, dubbed as TRAIN or Tax Reform for Acceleration and Inclusion will reduce personal income tax rates of salaried employees, while increasing taxes charged on fuel, automobiles, sugar-sweetened beverages, and stock transactions, among others.
At present, the stock transaction tax amounts to 0.5% of the gross trade amount. This will increase to 0.6% in 2018 under the tax reform.
Below is the updated list of taxes and fees to be charged to stock traders in the Philippine Stock Exchange (PSE) beginning January 2018.
Fees and Charges in a PSE Stock Transaction (starting 2018)
| PSE Trading Fees and Charges | Amount | Charged to |
|---|---|---|
| Broker's Commission | Maximum of 0.25% of gross trade amount or P20.00, whichever is higher | Both Buyers and Sellers of stocks |
| VAT on Broker's Commission | 12% of Broker's Commission | Both Buyers and Sellers of stocks |
| SCCP or Clearing Fee | 0.01% of gross trade amount | Both Buyers and Sellers of stocks |
| PSE Transaction Fee | 0.005% of gross trade amount | Both Buyers and Sellers of stocks |
| Stock Transaction Tax | 0.6% of gross trade amount (from 0.5% prior to 2018) | Only charged to Sellers of stocks |
For a detailed discussion about these stock charges, read our other article Sample Computation: PSE Stock Trading Fees and Charges.
Now, how will the increased stock selling transaction tax affect the cash proceeds available to sellers of stocks in the PSE?
We show below a sample computation. In this scenario, we assume that the broker’s commission is 0.25% and the seller is selling 10 shares of stocks at the price of P2,500:
Sample Computation: Selling P25,000 worth of shares
| Item | Current Formula | Current Amount | New Formula (under 2018 Tax Reform) | New Amount (under 2018 Tax Reform) |
|---|---|---|---|---|
| Gross Cash Proceeds from Sale of Stocks | 10 shares * P2,500 stock price | P25,000.00 | 10 shares * P2,500 stock price | P25,000.00 |
| Less: Broker's Commission | 0.25% * P25,000 | (62.50) | 0.25% * P25,000 | (62.50) |
| Less: VAT on Broker's Commission | 12% * P62.50 | (7.50) | 12% * P62.50 | (7.50) |
| Less: SCCP or Clearing Fee | 0.01% * P25,000 | (2.50) | 0.01% * P25,000 | (2.50) |
| Less: PSE Transaction Fee | 0.005% * P25,000 | (1.25) | 0.005% * P25,000 | (1.25) |
| Less: Stock Transaction Tax | 0.5% * P25,000 | (125.00) | 0.6% * P25,000 | (150.00) |
| NET CASH PROCEEDS | P24,801.25 | P24,776.25 |
As we can see in the table above, the increased stock transaction tax resulted in lower cash proceeds to the stock seller.
Specifically, the seller received net cash proceeds of P24,776.25 from the sales transaction — lower by P25.00 compared to the proceeds of P24,801.25 under the previous formula. Of course, this P25.00 represents the increased stock transaction tax which will now go to government.
Here’s another example. Let’s look at the nominal impact of the higher tax in stock transactions amounting to P1 million.
Sample Computation: Selling P1 million worth of shares
| Item | Current Formula | Current Amount | New Formula (under 2018 Tax Reform) | New Amount (under 2018 Tax Reform) |
|---|---|---|---|---|
| Gross Cash Proceeds from Sale of Stocks | 10,000 shares * P100.00 stock price | P1,000,000.00 | 10,000 shares * P100.00 stock price | P1,000,000.00 |
| Less: Broker's Commission | 0.25% * P1,000,000.00 | (2,500.00) | 0.25% * P1,000,000.00 | (2,500.00) |
| Less: VAT on Broker's Commission | 12% * P2,500.00 | (300.00) | 12% * P2,500.00 | (300.00) |
| Less: SCCP or Clearing Fee | 0.01% * P1,000,000.00 | (100.00) | 0.01% * P1,000,000.00 | (100.00) |
| Less: PSE Transaction Fee | 0.005% * P1,000,000.00 | (50.00) | 0.005% * P1,000,000.00 | (50.00) |
| Less: Stock Transaction Tax | 0.5% * P1,000,000.00 | (5,000.00) | 0.6% * P1,000,000.00 | (6,000.00) |
| NET CASH PROCEEDS | P992,050.00 | P991,050.00 |
For stock sales transactions amounting to P1 million, the impact of the additional stock transaction tax is a nominal P1,000.
Previously, sellers will get net cash proceeds of P992,050.00, but with the increased stock transaction tax, the net cash proceeds is now P991,050.00. The proceeds will be lower by P1,000 which will now go to the government.
In the end, the additional stock transaction tax (from 0.5% to 0.6% of the transaction amount) may not be a lot, but stock owners must always consider this tax. Otherwise, they might incur a loss, instead of realizing a profit, when selling stocks.
