There’s been a lot of talk about this topic lately, to the point of misinformation. In this article, I want to present both sides – the government's perspective and some statements from the public – to help us understand it better.

First off, the public shouldn’t panic about this 20 percent tax on interest since it’s actually been in place for short-term deposits since 1998, passed under the National Internal Revenue Code of 1997. And crucially, the 20 percent tax isn’t on the deposit amount itself but on the interest earned from long-term placements, which are those with a term of five years or more. Before this new law, long-term placements were tax-exempt, but those for less than five years were already taxed at a 20 percent rate on their interest.

With the new law, the Capital Markets Efficiency Promotion Act (CMEPA), or RA 12214, which became effective on July 1, 2025, interest earned on deposits is now taxed uniformly with a flat rate of 20 percent regardless of the maturity period. The CMEPA's purpose is to provide a standard rate because it was considered unfair for short-term depositors, who might not be able to afford long-term deposits, to be taxed while long-term depositors, or “the wealthy” as some consider them, were not. Another reason for the CMEPA Law is to encourage those with long-term deposits to invest in the capital markets. It aims to do this by reducing the stock transaction tax from 0.6 percent to 0.1 percent, decreasing documentary stamp taxes (DST) on original issuance of shares from one percent to 0.75 percent, and removing DST on collective investment schemes (source: dof.gov.ph, July 17, 2025).

On the other hand, during an interview on Ted Failon and DJ Chacha’s show, economist Professor Emmanuel Leyco emphasized that the people investing for five years or more are typically the middle class, not the wealthy.

According to Professor Leyco, the wealthy, with ₱100 million or more, are more likely to put their money into other deposit instruments or diversify into stock markets. But these middle-class individuals are trying to save for the future. For instance, they might be saving for their children’s college funds, a future wedding, a new home that a young couple might not be able to afford yet, overseas Filipino workers (OFWs) who want to save for future business ventures, or retirees aiming to secure their future.

From my perspective, as a former banker, these individuals may not want to risk their hard-earned money in volatile stock markets or other volatile funds. They might have invested a small portion in stocks and other volatile instruments in the past, but they set aside money that they hoped would give them a slightly higher return without the tax, while also providing more security without volatility, in these fixed-income placements for five years or more.

Professor Leyco also suggested that for a truly level playing field, the government should reduce the tax rate on interest, perhaps to six percent for all deposit interests. However, to me, this seems next to impossible since the government needs more revenue now than ever, with the Philippine debt having increased to nearly ₱16.92 trillion as of May 2025. Even just reducing the tax from 20 percent to 15 percent for interests on all deposits, regardless of term, would be quite impossible.

Furthermore, Professor Cielo Magno, in an interview with Christian Esguerra, was straightforward in stating that the CMEPA “does not make economic sense.” She argued that the law isn’t encouraging people to save, especially considering that these deposits are also used to grant loans, particularly to small and medium enterprises. So, instead of encouraging more long-term deposits, this 20 percent tax on interest disincentivizes deposits with long-term maturities, which, in the long run, could hinder economic growth. She further emphasized that these depositors are not “the wealthy ones” but are middle-income people, as Professor Leyco mentioned.

From the above comparison, I leave it to the readers to form their own opinion.