The local stock market has been taken by surprise with the trading suspension on Holcim Philippines and other firms. In response, stock brokers are circulating a petition urging the Philippine Stock Exchange (PSE) to protect the interests of minority shareholders. One proposal being suggested is for the PSE to require listed companies falling below the public ownership requirement to make a tender offer before trading suspension is implemented.
The PSE is currently constrained by a Bureau of Internal Revenue (BIR) regulation from 2012, which imposes capital gains taxes on the sale of shares of listed companies that fall below the minimum public ownership requirement. Essentially, it is up to the BIR to exempt Holcim from this regulation.
It seems that Holcim is warming up to the idea of seeking this exemption, and an announcement may soon be made to extend the August 30 tender offer deadline. Similar exemptions have been granted in the past, such as when San Miguel Food and Beverage (SMFB) obtained an exemption in relation to a share-swap deal.
From a financial standpoint, it may be beneficial for the BIR to consider the exemption. By allowing Holcim shares to be traded on the PSE, the BIR can collect transaction taxes and value-added taxes on broker commissions. Additionally, income taxes can be collected from brokers and individuals who profit from trading these shares. The combined revenue from these sources may outweigh the potential capital gains tax collected on shares with acquisition costs below the selling price.
Furthermore, granting the exemption would encourage more small investors to participate in the tender offer, as the process would be less burdensome and time-consuming. Ultimately, this could result in greater tax revenue for the BIR.
The burden is on Holcim itself to convince the BIR to grant the exemption. However, the PSE is willing to support the petition by writing to the BIR. It is crucial for Holcim to take the first step and initiate the conversation with the BIR.
“If BIR exempts Holcim, they can collect taxes sooner and without the work of going through each account, most of which will not be subject to capital gains tax anyway because most acquisition costs are very high … well above tender price (Holcim prices were above tender price for most of its listing period),” explained a market veteran.
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