Changing investment landscape

A couple of months before the much-anticipated Capital Markets Efficiency Promotion Act (CMEPA) took effect, my friend Carmen got in touch about a five-year-plus-one placement offered by a publicly listed universal bank, promising a pretty good yield.

- FIL C. SIONIL

Considering and understanding that transaction tax changes were imminent this month, my suggestion, based on advice from bank treasurers, was to subscribe to the offered placement.

Yes, Virginia, one of CMEPA’s provisions that, to my mind, will significantly impact medium-term placements—five years and up—is the removal of the tax exemption on certain types of fixed-income securities.

Prior to CMEPA taking effect, certain government securities (GS) and bank-issued bonds with tenors of five years plus one were considered tax-exempt. Now, there will be a uniform 20-percent withholding tax across all interest-bearing securities.

This is precisely where Carmen’s May placement, if she accepted the offer, makes a significant difference, as CMEPA is not applicable to previously issued bonds/GS or time deposits of five years plus with a tax-exempt feature.

That’s right, Virginia! This provision is only applicable to prospective issues/placements from July 1st onwards. Market players and market makers had already informed their respective clients about CMEPA’s impact on the yield of their five-year-plus-one placements as early as February this year.