New Capital Markets Law Promotes Investment, Tax Reform

The newly signed Republic Act No. 12214, or the Capital Markets Efficiency Promotion Act (CMEPA), is expected to widen Filipino participation in capital markets and modernize the taxation of financial instruments in the Philippines.

Finance Secretary Ralph G. Recto welcomed the measure, calling it a “landmark reform” that simplifies investment channels and promotes inclusive growth.

“This is a major victory for the country, as inclusive access to investment opportunities and a broader, deeper financial system are vital pillars of long-term, inclusive growth,” Recto said.

He added that revenues generated through CMEPA would support government priority projects in infrastructure, health, education, agriculture, and other essential services.

Backed by the Department of Finance and aligned with President Ferdinand R. Marcos Jr.’s economic agenda, the law is projected to generate over PHP 25 billion in net revenue gains between 2025 and 2030.

It also supports the Medium-Term Fiscal Framework’s goal of reducing the fiscal deficit to 3.8% of gross domestic product by 2028.

Special Assistant to the President for Investment and Economic Affairs Frederick D. Go said the law signals a commitment to building “deeper, more efficient capital markets” that will enhance liquidity, capital formation, and economic growth.

CMEPA standardizes the tax on interest income at 20%, ending inconsistencies that created tax arbitrage in the past.

The Stock Transaction Tax is slashed from 0.6% to 0.1%, while the Documentary Stamp Tax (DST) on original issues of shares drops from 1% to 0.75%.

The law also exempts the original issuance, redemption, or transfer of mutual fund shares and investment trust fund participations from DST.

These changes are designed to cut transaction costs, increase liquidity, and make Philippine capital markets more competitive within the region.

A uniform 0.75% DST is imposed on bonds and other securities issued abroad, regardless of jurisdiction, reinforcing tax neutrality across similar financial instruments.

CMEPA introduces a formal definition of “passive income” and broadens the legal definition of “securities” to align the tax system with modern financial practices.

Private employers who match or exceed employee contributions to Personal Equity and Retirement Accounts (PERA) under R.A. 9505 are now entitled to an additional 50% tax deduction.

To ensure equity across sectors, CMEPA removes the tax exemption on pick-up trucks not used for livelihood and ends tax breaks on passive income earned by government-owned and controlled corporations (GOCCs).

However, President Marcos vetoed several provisions to preserve fiscal prudence and policy coherence, including a proposed repeal of tax exemptions for nonresident income from Foreign Currency Deposit Units.

The veto also retained the Philippine Guarantee Corporation’s tax exemptions to preserve access to affordable housing for low-income families.

Additionally, a proposed DST on bettors of Philippine Charity Sweepstakes Office games was excluded to avoid discouraging legal gaming that supports public welfare programs.