The Department of Finance (DOF) assured the public that the recently enacted Capital Markets Efficiency Promotion Act (CMEPA) will not impose new taxes on the savings of ordinary Filipinos. Instead, it standardizes the tax rate on interest income to ensure fairness and eliminate preferential treatment for wealthier depositors.
Finance Secretary Ralph G. Recto emphasized that the measure is meant to correct an inequitable system that previously allowed the wealthy to enjoy lower tax rates.
“CMEPA does not impose a new tax, instead standardized the tax rate on interest income to correct an unfair system that favored the wealthy,” Recto said in a statement on Thursday, July 17, countering false reports circulating online.
The law sets a uniform 20-percent tax rate on interest income, streamlining compliance and removing confusion for both banks and depositors. According to the DOF, this rate had already been applied to most short-term deposits under the National Revenue Code of 1997, affecting about 99.6 percent of all deposit accounts. Only 0.4 percent — typically long-term, high-value deposits — benefited from preferential rates.
Previously, deposits maturing in more than five years were tax-exempt, while those with four- to five-year maturities were taxed at 5 percent and three- to four-year maturities at 12 percent. This arrangement, the DOF argued, gave an advantage to those who could lock in funds for longer periods, leaving small savers at a disadvantage.
“This special tax treatment favored depositors who can afford to park their savings in long-term deposits, making the tax system unfair for short-term depositors who face liquidity issues and need immediate access to their funds,” the DOF explained.
With CMEPA, all interest income is now taxed at a flat rate of 20 percent regardless of the deposit term.
The DOF clarified that the new standardized rate, effective July 1, will not apply to financial instruments issued or transacted before that date. Long-term deposits made prior to the law’s effectivity will retain their preferential rates until maturity.
Furthermore, provident savings programs under the Social Security System (SSS), Government Service Insurance System (GSIS), and Pag-IBIG Fund — including the MP2 program — remain exempt from tax.
“These savings programs remain exempt from tax,” the DOF confirmed.