AN economist-lawmaker on Wednesday said the government should make it easier and cheaper for Filipinos to invest by passing into law the proposed Collective Investment Schemes Act.
House Committee on Ways and Means Chairman Joey Sarte Salceda issued the statement after getting elected by the House Committee on Economic Affairs to chair the technical working group on Collective Investment Schemes, under his House Bill (HB) 642.
According to Salceda, the proposal will make it easier and cheaper for working Filipinos to invest in legitimate securities.
“Countries, including the United Kingdom, Japan, Australia, Korea and Singapore, have adopted a single law to regulate all types of CIS. Presently, the Philippines has various laws governing investment companies [mutual funds], unit investment trust funds, and separate account funds or variable unit linked insurance products,” he said.
A collective investment scheme is an “arrangement where funds are pooled for the purpose of investing in securities and other investments.”
Under current laws, which do not expressly provide for collective investment schemes, Salceda said investors need to shell out significant amounts of cash in order to make investments in “clunky” assets such as real estate or businesses.
Salceda also said entering into an investment itself is “tricky” for ordinary Filipinos.
“Only around 27 percent of households have any savings at all, and many of them are excluded from investing. If you are an OFW and you never had a TIN, you won’t be able to get one while abroad because you can only get a TIN onsite. That is potentially $58 billion that is not being fully tapped in the formal markets – and that is why OFWs are susceptible to scams. We are trying to solve that with the Ease of Paying Taxes Act,” Salceda said.
“But the other problem is that our assets tend to be “clunky,” In finance, we call this asset divisibility. The idea is that assets can be divided into infinitesimally small units so that the smallest retail investor can participate in investing an asset. Because we do not have a legislated CIS framework, most of our assets cannot be divided among smaller investors,” he added.
Salceda said the country needs a stronger and broader market for collective investment schemes.
“Collective investment schemes reduce the fixed costs of fund management and administration,” he said.
“There is already a working model in the REIT [Real Estate Investment Trust] law, which is basically a collective investment scheme, except the supply of investment products comes first. This proposal simply defines a CIS as an arrangement where funds are pooled for the purpose of investing in securities and other investments,” he added.
But, the lawmaker said the government should set ground rules.
“First, the duties and responsibilities of the fund manager need to be outlined, and this bill tries to do that. The agreement to manage funds has to follow certain parameters. The decision-making for the fund, as well as custodianship arrangements need to be set,” he said.
Salceda also wants attractive tax perks for such schemes.
“As with the PIFITA [Passive Income and Financial Intermediary Taxation Act], we also propose to apply the tax treatment for shares not listed in the exchange for shares of participation for the CIS. We also propose to provide the same tax incentives we give to REITs, since the characteristics are analogous,” he said.
