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Effects of the Abolition of the Documentary Stamp Tax (DST) on Stock Market Transactions, May - June 2010


The paper aims to examine the effects of the abolition of the DST on stock market transactions to serve as inputs to further fiscal policymaking. The DST is a tax upon documents, instruments, loan agreements and papers, acceptances, assignments, sales and transfers of obligations, right or property incident thereto and in respect of the transaction so had or accomplished. It is a tax on the privilege to enter into transactions and makes the transaction document official. Republic Act (RA) No. 9648 exempts the sale, barter or exchange of shares of stock listed and traded through the local stock exchange from the DST. The removal of the DST is anticipated to boost domestic trading activities and encourage foreign investments. It is observed that the temporary five-year DST exemption of the sale, barter or exchange of shares of stock listed and traded through the local stock exchange under RA 9243 has achieved its goal via tremendous increase in the volume and value of stocks. As noted, from 2004 to 2008, the abovecited exemption from DST has made a significant leap in terms of stocks traded or transacted. Although the move has likewise forced the government to give up substantial revenue from DST, in return it increased its stock transaction tax collections since the measure yielded higher taxable stock turnover during the same period. With the perpetual exemption from DST under RA 9648, the local stock market is expected to grow further. However, consideration must also be made of the fact that the robust performance of the stock market is due to several factors and not solely to taxes on stock market transactions. An evaluation of these other factors and consideration of options to deal with them are necessary if the growth in stock trading is to be sustained.

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