DOF welcomes new capital markets tax law 

The newly signed Capital Markets Efficiency Promotions Act (CMEPA) is projected to generate over P25 billion in net revenue gains over the next five years, the Department of Finance (DOF) said in a report by Manila Bulletin.

Finance Secretary Ralph G. Recto said CMEPA also supports the country’s medium-term fiscal program to cut the country’s fiscal deficit to around 3.8 percent of gross domestic product (GDP) by 2028, or the end of President Ferdinand Marcos Jr.’s term.

CMEPA “will encourage ordinary Filipinos to invest in the Philippine capital markets,” the DOF said in a statement released on Friday, May 30.

One of the main features of the law is setting a uniform 20-percent tax rate on interest income to ensure fairness and prevent tax loopholes.

It also lowers the stock transaction tax (STT) from 0.6 percent to 0.1 percent and the documentary stamp tax (DST) on newly issued shares from one percent to 0.75 percent.

“It also exempts from DST the original issuance, redemption, or transfer of mutual fund shares, as well as certificates or proof of participation in mutual funds or investment trust funds,” the DOF said.

“This is a landmark reform that brings capital market investments closer to the Filipino people. By making investment channels clearer, more affordable, and more accessible, especially for small investors, we open the door to greater financial inclusion for our people,” Recto said as he welcomed the enactment of the law.

He added that the taxes collected “will be used to fund our priority projects in infrastructure, health, education, agriculture, and other public services.”

Special Assistant to the President for Investment and Economic Affairs Frederick D. Go noted that the passage of CMEPA “sends a clear message to both domestic and global investors that the Philippines is committed to building deeper, more efficient capital markets.”

“This reform is expected to boost and strengthen liquidity, trading activity, capital formation, and contribute to broader economic growth,” Go said.

Aside from reduced transaction costs, the DOF said that these measures are also expected to “encourage market participation and financial planning, boost market liquidity, make the country’s equities market regionally competitive, and increase capital market growth.”

To promote fair taxation, CMEPA sets a uniform 0.75-percent DST on bonds, debentures, and stock or debt certificates issued abroad, regardless of where they come from. This supports a neutral and consistent tax system.

Under CMEPA, private employers who match or exceed their employees’ contributions to personal equity and retirement accounts (PERA), as outlined in Republic Act (RA) No. 9505, can claim an additional 50-percent tax deduction on their actual contributions.

“The law also levels the playing field among industry players as it repeals the tax exemption on pick-up trucks that are not used for livelihood purposes,” the DOF said.

Tax exemptions on passive income earned by state-owned firms are also removed, a move aimed at simplifying the tax system and increasing government revenues by applying the same tax rates as those for other businesses.

Further, the plan to remove the tax exemption on nonresident income from foreign currency deposit units (FCDUs) was dropped to uphold a long-standing policy that supports investor trust and financial stability.

The provision requiring bettors of Philippine Charity Sweepstakes Office (PCSO) games to pay DST was also excluded to avoid discouraging participation in legal games that help fund public welfare programs.

Finally, the Philippine Guarantee Corp.’s (PHILGUARANTEE) tax exemptions were retained to protect affordable housing loans for low-income borrowers and ensure continued government support for the housing sector.