Having been used to the mechanics of trading stocks in the US stock market, there’s a bit of a learning curve in understanding how trading stocks in the Philippine Stock Exchange works.
The first major difference is with regards to online broker commissions. In the US, flat-rate commissions typically ranging from $4.95 to $7.95 have been commonplace for the past several years. These were paid for each buy and sell transaction regardless of transaction size. Zero-free commissions were popularized by Robinhood. In October 2019, more established brokers like Charles Schwab, TD Ameritrade, E*TRADE, and others followed suit by reducing their commissions to zero. So it’s now practically free to trade stocks in the US stock market. You’ll just have to take care of paying capital gains taxes when you file your tax return.
In the Philippines, commissions are percentage-based. My online broker BDO Nomura charges the following fees for BUYING stocks:
- Securities Clearing Corporation of the Philippines (SCCP) fee – 0.010% of the gross amount
- Broker’s commission – 0.25% of the gross amount (minimum PHP 20)
- Value Added Tax (VAT) – 12% of the broker’s commission
- Total: 0.29% of gross amount
On the other hand, the fees for SELLING stocks are:
- Securities Clearing Corporation of the Philippines (SCCP) fee – 0.010% of the gross amount
- Broker’s commission – 0.25% of the gross amount (minimum PHP 20)
- Value Added Tax (VAT) – 12% of the broker’s commission
- Sales Tax – 0.60% of the gross selling amount
- Total: 0.89% of the gross amount
Ideally, the minimum gross transaction amount should be PHP 8,000 so as not to be “shortchanged” by the minimum broker’s commission of PHP 20.
One can do the math and see that the stock price has to increase by about 1.1906% to break even with the buying and selling fees. If you buy and sell the stock at the same price, you have a 1.18% loss.
Speaking of gains and losses, another important difference between trading stocks in the US and in the Philippines is how gains and losses are taxed. In the US you’ll pay tax on your net capital gains (minus capital losses) based on the graduated income tax table if they are short term capital gains. If they are long term capital gains, they’re taxed at a lower rate. This information is filed with your regular tax return.
In the Philippines, with stocks traded in the local stock exchange, there appears to be no more filing requirement for any capital gains tax, as the broker has already collected the sales tax of 0.60% of the gross selling amount. This means you’re taxed every time you sell even if it’s at a loss. I have not found any literature on whether you can deduct losses from stock market trading in your Philippine tax return, so the concept of “tax loss harvesting” is probably not applicable in the Philippines.