Bankers addfress misinformation against CMEPA law

Bankers are addressing misinformation surrounding the new Capital Market Efficiency and Promotion Act (CMEPA), clarifying that the law's impact on long-term deposits and foreign currency accounts affects only a small segment of the population.

CMEPA's Impact

Ana Delgado, President and CEO of UnionBank, said the initial public reaction, particularly on social media, stemmed from a misunderstanding that all savings would be taxed. She emphasized that the 20 percent withholding tax applies only to interest income, not the principal amount of savings.

Delgado clarified that the majority of Filipinos are not affected by CMEPA because the changes primarily target:

• Dollar savings accounts.
• Long-term peso time deposits, specifically those with terms of five years or more. Most Filipinos hold peso savings and short-term deposits, which remain unaffected by the new law.

Effective July 1, CMEPA implements a uniform 20 percent final withholding tax on interest earned from various deposit products, including:

• Savings accounts
• Time deposits
• Trust funds
• Deposit substitutes
• Negotiable certificates of deposit

Previously, interest income from time deposits held for five years or more was tax-exempt, and those held between three and five years had lower tax rates. The new law also increased the tax on interest from foreign currency deposits for Philippine residents from 15 percent to 20 percent.

Delgado noted that public concern has lessened as banks and regulators have provided more clarity, and she expressed support for the government's aim to raise funds.

Leveling the Playing Field

Jose Teodoro Limcaoco, President and CEO of BPI, reinforced that CMEPA doesn't introduce a new tax but rather standardizes the tax treatment across all deposit products. He pointed out that a 20 percent withholding tax on deposits has been in place for nearly 30 years. CMEPA simply removes the tax exemption for deposits held for over five years, which he stated are used by only a small percentage of depositors, thus creating a fairer system for smaller depositors.

Alternative Investment Options

Edwin Bautista, President and CEO of PNB, shared that five-year time deposits have always had limited popularity in the banking industry, being more common among digital banks seeking long-term funds. He highlighted that clients looking for long-term investment options can still consider tax-exempt alternatives, such as Retail Treasury Bonds (RTBs).

Market Reaction and Future Outlook

Albert Tinio, co-CEO of GoTyme, believes it's too early to fully assess CMEPA's long-term behavioral impact on depositors. Similarly, Raffy Montemayor, co-founder of Salmon and chairman of Rural Bank of Sta. Rosa, observed a rush to open five-year time deposits in June before the changes took effect. However, he noted that deposits across various terms continue to come in, indicating that people are still seeking high yields from trusted banks.

While banks anticipate some shifts in investment preferences, they largely expect financial inclusion and savings habits to remain stable as public understanding of the law improves. The Securities and Exchange Commission (SEC) also anticipates that CMEPA will encourage greater savings and boost liquidity in the stock market, particularly due to the reduced stock transaction tax, which aligns the Philippines with other ASEAN countries.