No new tax rate: PH law implements standardized tax on savings interests

Major banks in the Philippines have begun imposing a unified tax rate on any interest Filipinos earn from savings or investment products, as the government hopes to correct the previous system that claimed to favor only the rich. 

CMEPA now in effect

Simplifying investment taxes

Started last July 1, established financial institutions like Metropolitan Bank & Trust Co., Union Bank of the Philippines and Security Bank Corp. said that interest income from both peso and foreign currency accounts is now subject to 20 percent final withholding tax. 

The Department of Finance (DOF) stressed on Thursday that the measure “merely corrects this outdated and inequitable system that placed a heavier burden on ordinary Filipinos who do not have the extra cash to put in banks for longer periods.”

It noted that 99.6 percent of total deposits are already subject to the 20 percent tax rate. 

More specifically, the deposits that benefited from favorable rates are those with a maturity period of more than five years, which are tax-exempt, while deposits that mature in 4 to 5 years and 3 to 4 years are subject to just 5 percent and 12 percent tax, respectively. With the new law, interest income is now taxed uniformly with a flat rate of 20 percent, regardless of the maturity period, the DOF said. 

This came as President Ferdinand Marcos Jr. signed into law Republic Act 12214 or the Capital Markets Efficiency Promotion Act (CMEPA). 

Security Bank backs the government’s move, saying this is in line with international standards.

It helps grow our economy by making it easier for businesses to raise money, ensures the government can manage its finances wisely and encourages more people to invest in the local financial markets. Investors can also now enjoy a streamlined, more predictable tax regime, Security Bank said. 

Marcos, in his previous speech, assured that the measure would not only benefit “the well-off, the professional, the stock traders,” but it would help every Filipino to have “better financial security.”

Aside from the tax on deposits, he also believes the law will encourage more Filipinos to invest, as those buying stocks for the first time can see a lower transaction tax from 0.6 percent to 0.1 percent. This means that for every PHP 10,000 worth of stock, the investor will only need to pay PHP 10 in tax instead of PHP 60. 

The adjustment of rates lowers barriers and opens the market to more investors, Marcos said.

DOF Secretary Ralph Recto earlier said that RA 12214 is expected to generate over PHP 25 billion in revenue through 2030. It will help lower the fiscal deficit while improving access to capital and investment opportunities for ordinary Filipinos.

Sources: Philippine Star, Presidential Communications Office, PNA Via: BitPinas