The Department of Finance (DOF) has clarified that a new law will not tax the savings of ordinary Filipinos, as it only standardizes the tax rate on interest income, eliminating the unfair preferential treatment previously enjoyed by the wealthy.

Finance Secretary Ralph G. Recto said the passage of the Capital Markets Efficiency Promotion Act (CMEPA) would only remove preferential or lower taxes for wealthy depositors, setting a uniform 20-percent rate on interest income across the board.

“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, Ju;y 17, countering the false reports circulating online.

“Under CMEPA, the tax on interest income has been equalized at 20 percent to simplify compliance, eliminate confusion, and ultimately level the playing field for all Filipinos,” the DOF said.

It noted that even before the law was enacted, a 20-percent final tax rate on interest income from short-dated bank deposits or those maturing in less than three years was already in place. It was under the National Revenue Code of 1997.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that a majority, or about 99.6 percent, of total deposits were already subject to the 20-percent tax rate, whereas the 0.4 percent “enjoyed preferential rates.“

In particular, deposits maturing in more than five years were “tax exempt,” the DOF pointed out.

Deposits with a maturity of four to five years and three to four years are subject to a lower five percent and 12 percent tax, respectively.

“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 said.

It asserted that CMEPA only corrects this “outdated and inequitable system that placed a heavier burden on ordinary Filipinos who do not have the extra cash to put in banks for longer periods.”

As such, interest income is “now taxed uniformly with a flat rate of 20 percent, regardless of the maturity period” under the new law.

Regarding its scope, the standardized tax rate, effective as of July 1, will not apply to financial instruments issued or transacted prior to that date. Thus, long-term deposits made before the law took effect will keep their lower tax rate until they mature.

The DOF also clarified that the unified tax rate will not cover provident savings programs under the Social Security System (SSS), Government Service Insurance System (GSIS), and Pag-IBIG, including MP2. “These savings programs remain exempt from tax.”

CMEPA also encourages Filipinos to invest and diversify their sources of income by reducing the stock transaction tax (STT) rate from 0.6 percent to 0.1 percent, lowering the documentary stamp tax (DST) on newly issued shares from 1 percent to 0.75 percent, and eliminating the DST on collective investment schemes.

These reforms, the DOF said, are expected to lower transaction costs, attract more investors, enhance financial planning, improve market liquidity, boost the country’s regional competitiveness, and drive capital market growth.

To promote fair taxation of similar financial transactions, CMEPA sets a uniform 0.75 percent DST on bonds, debentures, and stock certificates issued abroad, regardless of jurisdiction, reinforcing tax neutrality.

Further, private employers who match or exceed their employees’ contributions to Personal Equity and Retirement Accounts (PERA) under Republic Act No. 9505 can claim an additional 50-percent tax deduction on their actual contributions.

Tax exemptions on passive income earned by state-run firms have also been removed to eliminate inconsistencies in the tax system and ensure they are taxed at the same rates as other entities, helping to expand government revenues.

Meanwhile, the tax exemptions for the Philippine Guarantee Corporation were retained to support affordable housing finance for low-income borrowers and ensure continued government assistance to the housing sector.

“The DOF will continue to exercise prudence in formulating sound fiscal policies to eliminate inconsistencies in the system and ensure a more equitable tax environment for the people,” the agency said.