Are Dealers in Securities Subject to the Stock Transaction Tax? NIRC Section 127(A) Explained

NIRC Section 127(A) taxes the sale of shares listed and traded through the local stock exchange — except a sale by a dealer in securities, a licensed merchant that buys and sells securities for its own account as a business, not an ordinary investor who simply owns shares. That single carve-out is easy to misread as a minor exemption; in practice it means a dealer in securities and an ordinary investor selling the exact same PSE-listed stock are taxed under two entirely different regimes — one under the stock transaction tax on gross selling price, the other folded into ordinary income tax on the dealer’s own books.

Who counts as a “dealer in securities”? #

A dealer in securities is a merchant of stocks or securities — an individual, partnership, or corporation with an established place of business — regularly engaged in buying securities for the purpose of reselling them to customers, with profit on the resale as the point of the business. A licensed stockbroker-dealer trading for its own account is the clearest example. An ordinary investor is not a dealer just because they trade often or hold a large portfolio: the test is whether buying and selling securities is itself the taxpayer’s trade or business, carried on with an established place of business and a regular, resale-for-profit model — not isolated or occasional transactions for one’s own investment or speculation.

Revenue Regulations No. 20-2025, the BIR’s implementing regulation for CMEPA’s stock transaction tax changes, defines the term for purposes of that tax as follows, per a tax advisory firm’s summary of the regulation:

“Dealer in Securities” means a merchant of stocks or securities, whether an individual, partnership or corporation, with an established place of business, regularly engaged in the purchase of securities and the resale thereof to customers.

This site could not directly fetch the full text of RR No. 20-2025 to re-verify this exact wording against the regulation itself; the quote above is a secondary advisory firm’s rendering of the definition, not a verbatim pull from the Official Gazette or BIR copy of the issuance. Confirm the precise text against the regulation before relying on it for a formal filing position.

Why does Section 127(A) carve dealers out of the stock transaction tax? #

Because a dealer’s securities aren’t the kind of asset the stock transaction tax was built to cover — they’re the dealer’s trading inventory, not an investment holding. What Is BIR Form 2552? The Stock Transaction Tax, Now 0.1% Under CMEPA and BIR Form 2552: How the Stock Transaction Tax on PSE-Listed Shares Actually Gets Filed cover how an ordinary seller’s stock transaction tax works: a percentage tax on the full gross selling price of a listed-share sale, collected by the broker and filed on BIR Form 2552, regardless of whether the seller made a profit. Section 127(A) explicitly excludes “the sale by a dealer in securities” from that regime — the dealer’s own trading is carved out, not merely discounted.

The reason for the carve-out tracks a broader classification rule in Philippine tax practice: shares held by a dealer in securities are treated as ordinary assets of that dealer’s business, the same way inventory is an ordinary asset to a merchandise retailer — not as capital assets, which is how shares are classified in the hands of an ordinary investor. That classification is what pulls a dealer’s securities gains out of both the stock transaction tax and the separate capital gains tax track, and into the dealer’s regular income tax computation instead.

What does this mean in practice for a licensed dealer’s own trading income? #

A dealer in securities does not separately compute or remit a stock transaction tax on its own trading account — its gains and losses from buying and reselling securities get reported as part of its ordinary gross income for the year, alongside whatever other business income it earns, and taxed at the regular corporate or individual income tax rates that apply to it. This site’s WebSearch research could confirm the Section 127(A) carve-out itself and the ordinary-asset classification with reasonable confidence across multiple sources, but could not independently pull the full current statutory text of Section 127(A) or a BIR-published worked computation of how a dealer’s taxable base is itself derived transaction-by-transaction. Readers computing an actual dealer’s tax liability should confirm the specific mechanics with a tax professional or directly against the current NIRC text and applicable revenue regulations rather than relying on this summary alone.

What this carve-out does not do is exempt a dealer in securities from tax on its securities gains altogether — it simply routes those gains into the dealer’s regular income tax return instead of the stock transaction tax or capital gains tax tracks that apply to non-dealers.

How CMEPA’s rate cut fits around this distinction #

CMEPA (Republic Act No. 12214) and RR No. 20-2025 lowered the stock transaction tax rate from 0.6% to 0.1% of gross selling price, effective July 1, 2025 — a change that affects ordinary sellers of listed shares, not dealers in securities, since dealers were never inside that tax base to begin with. The rate cut is covered in full in the site’s existing BIR Form 2552 guides; the dealer-in-securities carve-out predates CMEPA and sits outside the scope of what that law changed.

Pre-filing checklist: is this seller a dealer in securities or an ordinary investor? #

1. Confirm whether buying and reselling securities is the seller’s actual trade or business — an established place of business and regular resale activity point toward dealer status; occasional personal trading does not.
2. If the seller is an ordinary investor, the stock transaction tax applies to a PSE-listed sale at the current CMEPA rate, collected by the broker on BIR Form 2552.
3. If the seller is a licensed dealer in securities, confirm the shares are classified as ordinary assets on the dealer’s own books before assuming stock-transaction-tax or capital-gains-tax treatment applies.
4. Route a confirmed dealer’s securities gains through its regular income tax computation, not a separate percentage tax filing, and verify the specific mechanics with a tax professional given the limited primary-source detail available online.
5. Don’t assume CMEPA’s 0.1% rate cut changes anything for a dealer — it only affects the ordinary-seller stock transaction tax base.

How does this fit with the rest of the site’s percentage tax guides? #

This post builds on What Is BIR Form 2552? The Stock Transaction Tax, Now 0.1% Under CMEPA and BIR Form 2552: How the Stock Transaction Tax on PSE-Listed Shares Actually Gets Filed, which both cover the ordinary-seller side of Section 127(A) in detail. It’s part of the site’s broader set of guides on BIR percentage tax and income tax compliance.

Frequently asked questions #

What is a dealer in securities under Philippine tax rules? #

A dealer in securities is a merchant of stocks or securities — an individual, partnership, or corporation with an established place of business — that regularly buys securities for its own account with the purpose of reselling them to customers for profit, such as a licensed stockbroker-dealer. An ordinary investor who buys and holds shares for appreciation or occasional trading is not a dealer in securities.

Does the stock transaction tax under Section 127(A) apply to a dealer in securities? #

No. NIRC Section 127(A) taxes the sale of shares listed and traded through the local stock exchange other than a sale by a dealer in securities. The stock transaction tax, now 0.1% of gross selling price under CMEPA, applies to an ordinary seller’s listed-share sale, not to a dealer’s own trading.

How is a dealer in securities taxed on gains from selling shares, if not under the stock transaction tax? #

A dealer in securities holds its shares as ordinary assets — inventory of its securities-dealing business — rather than as capital assets. Gains from selling those shares are folded into the dealer’s ordinary business income and taxed under the regular corporate or individual income tax, not under the stock transaction tax or the separate capital gains tax that applies to a non-dealer’s unlisted-share sale.

What is the difference between a dealer in securities and an ordinary investor selling the same listed shares? #

The dealer is in the business of buying and selling securities for its own account as its trade — its shares are ordinary assets and its gains are ordinary income. The ordinary investor’s shares are capital assets, and a sale through the local stock exchange is subject instead to the stock transaction tax on the gross selling price, regardless of gain or loss.

Did the CMEPA law change how dealers in securities are taxed? #

CMEPA (Republic Act No. 12214) and its implementing Revenue Regulations No. 20-2025 lowered the stock transaction tax rate that applies to ordinary sellers of PSE-listed shares, from 0.6% to 0.1% of gross selling price, effective July 1, 2025. That rate change concerns the tax ordinary sellers pay under Section 127(A); it does not convert a dealer in securities into a stock-transaction-tax payer.

Summary #

Section 127(A) draws a sharp line between an ordinary investor selling PSE-listed shares — who pays the stock transaction tax (now 0.1% under CMEPA) on gross selling price — and a dealer in securities, whose shares are ordinary business-inventory assets and whose gains are taxed through the regular income tax instead. The precise computational mechanics of a dealer’s own tax base rest on limited directly verifiable primary-source detail in this research pass, so confirm them with a tax professional before relying on this post for an actual dealer’s filing position. See What Is BIR Form 2552? for the ordinary-seller side of this same provision.