The Department of Finance (DOF) encourages Filipinos to diversify their investment portfolios as the new Capital Markets Efficiency Promotion Act (CMEPA) reduces transaction costs, making it easier and more affordable to channel hard-earned savings into productive investments.
In line with the DOF’s push to promote financial literacy and inclusion, the law effectively lowers the barriers that prevent investors from entering the capital markets.
“There is no truth that CMEPA discourages people from saving and investing. Actually, CMEPA is not just a revenue bill, but an act to boost our capital markets and allow for greater participation, especially among ordinary Filipinos. Investing is now not just for the rich, but is for every Filipino who dreams of financial security and a better future, who can now achieve that by diversifying their savings and investments,” Finance Secretary Ralph G. Recto said.
The Finance Chief cited other saving programs offered by the government, such as Pag-IBIG MP2 savings and Retail Treasury Bonds (RTBs), as options for the public to invest in.
The Bangko Sentral ng Pilipinas (BSP) 2021 Financial Inclusion Survey shows that only 8 million out of 77 million Filipino adults own investment products — equivalent to one out of every ten Filipinos.
Before CMEPA was implemented, the Philippines had the highest Stock Transaction Tax (STT) in the ASEAN region at 0.6%, disincentivizing investors from trading.
Now, CMEPA reduced the STT on the sale or exchange of shares to 0.1%, making investing in the Philippine Stock Exchange (PSE) more cost-competitive.
“The other benefit that people are not really highlighting is on the equity side––sales tax has been reduced from 60 basis points to just 10 basis points so it further reduces friction costs for those who trade in the market,” Sun Life Investment Management President Mike Enriquez said in an interview.
Ordinary Filipino investors stand to benefit since a lower STT increases their net returns by minimizing the amount of money deducted from the sale of their shares of stock. Lower transaction costs will also contribute to increased trading activity, leading to tighter spreads.
In addition, CMEPA reduced the Documentary Stamp Tax (DST) or stamp duty on the original issuance of shares by corporations from 1% to 0.75%, lowering the cost of capital and allowing more investors to participate in the market.
Furthermore, the DST on Mutual Funds and Unit Investment Trust Funds (UITFs)––collective investment schemes which are popular among young professionals and middle-class savers, is now tax-exempt.
These pooled investment schemes allow a single investor to put money into a broader range of asset types and share risks and benefits with other participants––a powerful means to grow one’s portfolio.
“Bottomline is to encourage people to save more, to invest more, to build their retirement funds, build their wealth funds, financial literacy, make their money work better for them,” RCBC Chief Economist Mike Ricafort said.
Tax on interest income is now a uniform final withholding tax (FWT) rate of 20%, regardless of the tenure of the financial instrument. This means no more preferential treatment for wealthy depositors.
“That was what is good in what CMEPA did. The tax-induced distortion in making investment decisions has been removed,” Atty. Benedicta Du-Baladad of Du-Baladad and Associates (BDB Law) said in an interview.
Finally, the removal of tax exemptions on passive income earned by Government-Owned and Controlled Corporations (GOCCs) means increased revenue collections for the government to support public services.
