Manila: The Department of Finance (DOF) on Thursday clarified that the Capital Markets Efficiency Promotion Act (CMEPA) does not impose a new tax but standardizes the tax rate on interest income to correct an unfair system that favored the wealthy. In a statement, the DOF said under CMEPA, the tax on interest income was set at 20 percent to simplify compliance, eliminate confusion, and level the playing field for all Filipinos.
According to Philippines News Agency, prior to the law's passage, the National Internal Revenue Code of 1997 imposed a 20 percent final tax on interest earned from bank deposits with a maturity of less than three years. The DOF, citing data from the Bangko Sentral ng Pilipinas (BSP), said more than 99.6 percent of total deposits were already subject to the 20 percent tax rate, while only 0.4 percent enjoyed preferential rates.
The DOF noted that deposits benefiting from favorable rates were mainly those with maturity periods of more than five years, which were tax exempt, while deposits maturing in 4 to 5 years and 3 to 4 years were subject to just 5% and 12% tax, respectively. This special tax treatment favored those who could afford long-term savings, disadvantaging short-term depositors who needed immediate access to their funds.
The CMEPA addresses this disparity by instituting a uniform tax rate of 20% on interest income, regardless of the maturity period. The DOF emphasized that the standardized tax rate is not retroactive and does not apply to financial instruments issued or transacted before July 1, 2025. Existing long-term deposits made prior to the law's effectivity will continue to enjoy preferential rates until maturity.
Additionally, the unified rate does not affect provident savings programs under the Social Security System (SSS), Government Service Insurance System (GSIS), and Pag-IBIG, which remain tax-exempt. Beyond leveling the playing field, CMEPA empowers ordinary Filipinos to invest by reducing the stock transaction tax (STT) rate from 0.6 percent to 0.1 percent and reducing the documentary stamp taxes (DST) on the original issuance of shares from 1 percent to 0.75 percent.
CMEPA also removed the DST on the original issuance, redemption, or transfer of mutual fund shares, and certificates of participation in mutual or investment trust funds. These measures are intended to reduce transaction costs, encourage market participation, boost liquidity, and enhance the country's regional competitiveness.
The DOF also introduced a uniform 0.75 percent DST on bonds, debentures, and stock certificates issued in foreign jurisdictions. The DOF reaffirmed its commitment to prudent fiscal policy formulation to eliminate systemic inconsistencies and ensure equitable tax conditions for Filipinos.
