The Department of Finance (DOF) sets the record straight on the purpose and provisions of the Capital Markets Efficiency Promotion Act (CMEPA), cautioning the public against fake news. CMEPA does not impose a new tax, instead it standardizes the tax rate on interest income to correct an unfair system that favored the wealthy.
Under CMEPA, the tax on interest income has been equalized at 20% to simplify compliance, eliminate confusion, and ultimately level the playing field for all Filipinos.
Prior to the law’s passage, the National Internal Revenue Code of 1997 already stipulated a 20% final tax on interest earned from bank deposits with a maturity of less than three years.
In fact, estimates using Bangko Sentral ng Pilipinas (BSP) data show that more than 99.6% of total deposits were already subject to the 20% tax rate, while only 0.4% enjoyed preferential rates.
More specifically, the deposits that benefited from favorable rates are those with a maturity period of more than five years, which are tax exempt, while deposits that mature in 4 to 5 years and 3 to 4 years are subject to just 5% and 12% tax, respectively.
This special tax treatment favored depositors who can afford to park their savings in long-term deposits, making the tax system unfair for short-term depositors who face liquidity issues and need immediate access to their funds.
The CMEPA merely corrects this outdated and inequitable system that placed a heavier burden on ordinary Filipinos who do not have the extra cash to put in banks for longer periods. With the new law, interest income is now taxed uniformly with a flat rate of 20%, regardless of the maturity period.
The standardized tax rate is not retroactive and does not apply to financial instruments that were issued or transacted prior to July 1, 2025. Therefore, existing long-term deposits made prior to the effectivity of the law will continue to enjoy the preferential rate until their maturity.
Your savings and investments in the Social Security System (SSS), Government Service Insurance System (GSIS), and Pag-IBIG (such as MP2) remain tax-free.
CMEPA is more than just taxation, it empowers ordinary Filipinos to save and invest in the capital market
Apart from leveling the playing field, the CMEPA empowers ordinary Filipinos to invest in the stock exchange and diversify their sources of income by reducing the stock transaction tax (STT) rate from 0.6% to 0.1%, decreasing the documentary stamp taxes (DST) on original issuance of shares from 1% to 0.75%, and removing the DST on collective investment schemes.
More specifically, CMEPA removed the DST on the original issuance, redemption, or transfer of mutual fund shares, as well as certificates or proof of participation in mutual funds or investment trust funds.
These measures are seen to cut transaction costs, encourage market participation and financial planning, boost market liquidity, make the country’s equities market regionally competitive, and increase capital market growth.
Moreover, to ensure equitable taxation of similar financial transactions, CMEPA imposes a uniform 0.75% DST on bonds, debentures, and certificates of stock or indebtedness issued in foreign countries, regardless of jurisdiction, reinforcing the principle of neutrality in the tax system.
CMEPA also defines “passive income” and clarifies and expands the definition of “securities” to make the tax treatment consistent across various financial instruments.
In addition, under CMEPA, private employers who contribute an amount equal to or greater than their employees’ contributions to Personal Equity and Retirement Accounts (PERA), as provided under Republic Act No. 9505, are entitled to an additional 50% tax deduction on their actual contributions.
Tax exemptions on passive income earned by government-owned and controlled corporations (GOCCs) are likewise removed to eliminate ambiguity in the tax system and broaden the government’s revenue base by subjecting GOCCs to the same tax rates as other entities.
Lastly, the Philippine Guarantee Corporation’s (PHILGUARANTEE) tax exemptions were likewise retained to safeguard affordable housing finance for low-income borrowers and to maintain the effectiveness of targeted government support for the housing sector.
The DOF will continue to exercise prudence in formulating sound fiscal policies to eliminate inconsistencies in the system and ensure a more equitable tax environment for the people.
