DOF pushes unrestricted trading of gov’t securities

MANILA, Philippines – Protecting the investing public from fraud or loss has prompted the Department of Finance (DOF) to ensure the proper assessment and collection of taxes on the transfer of government securities. 

As such, the DOF has further amended Department Order 141-95, or the rules and regulations on the issuance, placement, recording, selling, servicing, redemption, and payment of government securities issued by the Republic of the Philippines.

Government securirties are the unconditional debt obligations of the country, all denominated in Philippine peso, and are issued by the republic through its fiscal agent, the Bureau of Treasury (BTr).

Unifying the taxable and tax-exempt segment of the market by lifting the current restrictions is expected to create traction toward the desired robust secondary government securities market, Finance Secretary Cesar Purisima said.

The amended department order will now allow government securities to trade between various entities, regardless of their tax category/ classification in any BTr-accredited government securities trading market (GSTM). Transfers between market participants will also be allowed regardless of tax status.

Securities held by government-owned and controlled corporations (GOCCs) and local government units (LGUs) may be transferred prior to maturity only with GOCCs and LGUs which maintain securities account in the book entry of the BTr.

In the same manner, Tax Exempt Institutions (TEIs) may sell their government securities prior to maturity only to TEIs which maintain securities account in the book entry of the BTr.

To date, TEIs hold 21% of government securities, mostly held-to-maturity.

“By allowing TEIs to join the taxable segment of the market, we expect to have gradual increase in buy-sell transactions within and across categories. More transactions in the secondary market mean better price discovery and improved attractiveness of government paper leading to reduced borrowing cost for the government,” Purisima said.

The amendment also enables the BTr  to engage, designate, or employ facilities or systems that would enhance the existing registry capabilities of the Registry of Scripless Securities (RoSS). RoSS is the official record of absolute ownership, legal or beneficial title or interest in government securities.

“The reason for the original prohibition or restriction against the transfer of government securities between and among taxable entities, TEIs, GOCCs, and LGUs, is the system’s limitation to tax track transfers,” said Finance Undersecretary Carlo A. Carag. “The RoSS does not have tax-tracking capability at the moment.”

The BTr aims to roll out the non-restricted trading environment this September, assuming readiness of the market, Treasurer Rosalia de Leon said.

“Implementation mechanics for the transition to a non-restricted trading across tax categories shall be issued by the Treasury in order to prevent any disruption in the government securities market,” De Leon said.

As such, the BTr has partnered with various donor agencies to lay down the blueprint for treasury systems enhancement. Any engagement shall be duly cleared by the Bureau of Internal Revenue (BIR) to ensure its capability to accurately calculate and account for the appropriate taxes on relevant coupon period across tax categories.

In the meantime, the Treasury intends to engage the PDS Group, a private entity, to provide the same tax-tracking infrastructure it had provided in previous transactions at no cost to the government.

Specifically, the PDS Group’s Corporate Action Auto Claim (CAAC) facility was integrated with a sub-registry platform that managed the multi-currency retail treasury bonds issued in 2010 and the onshore dollar bonds in 2011. – Rappler.com