THE Department of Finance (DOF) today addressed misinformation surrounding the Capital Markets Efficiency Promotion Act (CMEPA), emphasizing that it does not introduce a new tax but rather rectifies an inequitable system favoring high-income earners.
CMEPA equalizes the tax rate on interest income to 20%, aiming for simplified compliance and a level playing field for all Filipinos.
Prior to CMEPA, the 1997 National Internal Revenue Code imposed a 20% final tax on interest from bank deposits maturing in under three years.
However, data from the Bangko Sentral ng Pilipinas (BSP) indicates that over 99.6% of deposits already fell under this 20% rate. Only 0.4% benefited from lower rates due to longer maturity periods: five-year-plus deposits were tax-exempt, while those maturing between four and five years faced a 5% tax, and those between three and four years a 12% tax.
This preferential treatment disproportionately benefited wealthier individuals who could afford long-term deposits, creating an unfair burden on those needing quicker access to their funds. CMEPA addresses this disparity by standardizing the tax rate to 20% across all maturity periods.
The DOF stresses that this standardized rate is not retroactive and excludes financial instruments issued or transacted before July 1, 2025.
Existing long-term deposits retain their preferential rates until maturity. Furthermore, savings and investments within the Social Security System (SSS), Government Service Insurance System (GSIS), and Pag-IBIG (including MP2) remain tax-exempt.
