CMEPA levels tax system, lowers investment costs for Filipinos

The Department of Finance (DOF) clarified Thursday that the Capital Markets Efficiency Promotion Act (CMEPA) does not impose a new tax but instead removes long-standing inequalities in the country’s financial system.

CMEPA equalizes the tax rate on all interest income at 20 percent, aiming to simplify compliance and eliminate advantages that previously favored wealthier Filipinos.

“More than 99.6% of total deposits were already subject to the 20% tax rate,” the DOF said, citing data from the Bangko Sentral ng Pilipinas (BSP). “Only 0.4% of deposits, mostly long-term placements, enjoyed preferential rates.”

Before CMEPA’s passage, short-term bank deposits were taxed at 20 percent while deposits held for three to five years faced lower rates—12 percent for 3–4 years, 5 percent for 4–5 years—and tax exemption for more than five years.

This setup primarily benefited individuals with sufficient cash to invest in long-term deposits, putting lower-income Filipinos who rely on liquid savings at a disadvantage.

CMEPA’s uniform 20 percent rate applies only to financial instruments issued or transacted on or after July 1, 2025. Deposits made prior to this date will continue to enjoy their current preferential rates until maturity.

Savings and investments in government-backed programs such as the Social Security System (SSS), Government Service Insurance System (GSIS), and Pag-IBIG—including the Modified Pag-IBIG II (MP2)—remain tax-exempt.

The law also introduces reforms aimed at improving financial inclusion and boosting capital market growth.

It slashes the stock transaction tax (STT) from 0.6 percent to 0.1 percent, reduces the documentary stamp tax (DST) on the original issuance of shares from 1 percent to 0.75 percent, and removes the DST on mutual fund shares and 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,” the DOF said.

CMEPA also standardizes a 0.75 percent DST on bonds and similar instruments issued abroad, regardless of jurisdiction, ensuring neutrality in financial taxation.

Further, the law clarifies the definition of “passive income” and expands the definition of “securities” to ensure consistent tax treatment across instruments.

Employers contributing to their employees’ Personal Equity and Retirement Accounts (PERA) are now entitled to an additional 50 percent tax deduction on their contributions, provided they match or exceed the employee’s share.

Tax exemptions previously granted to government-owned and controlled corporations (GOCCs) on passive income are removed under CMEPA to prevent loopholes and promote tax parity.

However, the tax privileges of the Philippine Guarantee Corporation (PHILGUARANTEE) are retained to support housing programs for low-income Filipinos.

The DOF said it will continue crafting fiscal policies “to eliminate inconsistencies in the system and ensure a more equitable tax environment for the people.”