The Department of Finance (DOF) engaged finance sector stakeholders in a briefing on March 1, 2024 on the proposed Package 4 of the Comprehensive Tax Reform Program (CTRP) that will simplify the tax structure on passive income and certain instruments and other financial products.

A priority measure of the Marcos, Jr. administration, Package 4 of the CTRP is aimed at making the taxation of passive income, financial intermediaries, and financial transactions simpler, fairer, and globally competitive.

The proposal will ensure a more efficient Philippine tax system, boost the competitiveness of the country’s capital markets, and foster greater financial inclusion among Filipinos.

Under the guidance of Finance Secretary Ralph G. Recto, the DOF refined its proposal with the goal of maintaining the structure of some products and instruments while deferring the implementation of certain provisions by 2028.

Interest income tax will be harmonized at 20% in 2024, while royalties will be maintained according to the existing tax code until 2027, subsequently harmonized and decreased to 15% in 2028.

Accordingly, the dividend income tax will remain unchanged until 2027, with a proposed harmonization of 10% in 2028.

On the other hand, the stock transaction tax will gradually be reduced annually by 0.1%, from 0.5% to 0.1% in 2028.

Current taxes on financial transactions, including sales, agreements to sell, memoranda of sales, deliveries, or transfer of shares or certificates of stocks, will be maintained until 2027 and subsequently removed in 2028. The same timeline applies to taxes on all bills of exchange or drafts.

Tax rates on bank checks, drafts, certificates of deposit not bearing interest, and other instruments will remain unchanged.

Meanwhile, from the current 12% VAT imposition on HMO, pre-need, and pension plans, a 2% premium tax will be imposed to harmonize the instruments with the tax on life and health insurance. This is to encourage participation in life insurance products.

On the other hand, rates on policies of insurance upon property, fidelity bonds, and other insurance policies will gradually be decreased annually by 1%, from 12.5% to 7.5% in 2028.

Furthermore, taxes on Philippine Charity Sweepstakes Office (PCSO) tickets, prizes, and other winnings will have no changes.

Lastly, taxes on mortgages, pledges, and deeds of trust will stay as is until 2027, after which they will be lowered to a 0.3% rate in 2028.

The DOF took note of the concerns raised by stakeholders during the briefing. It emphasized the need for close collaboration between the department and the key stakeholders to further refine the proposed Package 4 of the CTRP.

The measure is currently being taken up by the Technical Working Group (TWG) formed by the Senate Committee on Ways and Means. It was approved by the House of Representatives on November 14, 2022.

The stakeholder briefing was participated by representatives from the Philippine Chamber of Commerce and Industry (PCCI); Financial Executives Institutes of the Philippines (FINEX); Foundation for Economic Freedom (FEF); Philippine Racing Commission; Philippine Stock Exchange (PSE); Capital Market Development Council (CMDC); Trust Officers Association of the Philippines (TOAP); Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI); National Development Company (NDC); Chamber of Thrift Banks; Philippine Charity Sweepstakes Office (PCSO); and Bangko Sentral ng Pilipinas (BSP).

Also present in the briefing were DOF’s Legal Affairs Office (LAO) Director Euvimil Nina Asuncion and National Tax Research Center (NTRC) Deputy Executive Director Monica Rempillo.

The meeting was the second in the series of stakeholder briefings organized by the DOF in order to encourage stakeholder participation in pushing for the immediate passage of its priority tax measures.

Stakeholder briefings will also be held for the proposed Excise tax for single-use plastics; Motor Vehicle User’s Charge (MVUC), and Value-added tax (VAT) on digital service providers (DSPs).

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