By Matthew Miguel L. Castillo, Researcher
PUBLIC CLAMOR erupted on July 1 after the government announced the implementation of the Republic Act No. 12214 or the Capital Markets Efficiency Promotion Act (CMEPA) countrywide.
Filipinos complained of a seemingly new tax, entailed by the law, targeting their passively held savings in banks. This emerged as the law’s primary point of impression on the people which led to widespread verbal dismissals of its entirety.
But there are no new taxes.
Instead, CMEPA introduces a simpler, fairer, and more efficient income tax system to encourage saving and to boost capital markets in the Philippines.
The law aims to boost capital markets, increase market participation, improve liquidity, and lower transaction costs. However, such objectives have been greatly overshadowed by the law’s final withholding tax (FWT) component, leading it to be tagged as another money-making scheme that only favors greedy lawmakers.
Regardless of the backlash it received, the CMEPA has already changed the game in the Philippine banking landscape — a reality that investors and depositors will inevitably face.
VAGUE DIRECTIONSMichael Gerard D. Enriquez, president of Sun Life Investment Management and Trust Corp., said that the immediate negative feedback came from a lapse in communication to the public.
“It was misconstrued that it would withhold taxes on deposits or investments as a whole,” he told BusinessWorld during a Zoom interview, saying that a lot got surprised in hearing this.
BDO Capital and Investment Corp. President Eduardo V. Francisco said in an e-mail that the public thought a new 20% tax on investments and deposits will be added, which “has already been in place for a long time.”
“They should make it clearer next time for communication that [the tax] is only on the interest,” Mr. Enriquez added.
Taxes on interest earnings of deposits and other interest-bearing accounts have been in effect in cascading tiers according to time kept before CMEPA came in.
Interest on money kept for less than three years had been taxed at 20%, between three and four years at 12%, and between four and five years at 5%. The Bangko Sentral ng Pilipinas (BSP)-certified deposits kept beyond the five-year mark were free of taxes.
The CMEPA equalized the rate for all time lengths at 20% for all deposits made after July 1 for both peso- and dollar-dominated accounts.
Mr. Francisco said that the law just “levels the playing field” through this adjustment.
IS THE GRASS GREENER?As it has taken effect, Mr. Enriquez said that the CMEPA generates “a more equal opportunity for everyone,” pertaining to big and small investors alike.
“[It] addresses not just taxation on investments [but also] the taxes on transactions, especially on equity trading,” he added.
Through the act, the stock transaction tax (STT) has been lowered to 0.1% from 0.6%, implying a smaller cut in trading shares of a domestic corporation through local and foreign stock exchanges.
Additionally, documentary stamp taxes (DST) on the original issuances of shares have been reduced to 0.75% from 1% and completely lifted from initial transactions on mutual and investment trust funds.
CMEPA also imposes a blanket 0.75% DST on bonds, debentures, and certificates of stock and indebtedness issued in a foreign country.
Mr. Francisco said that the law makes it easier for Filipinos to try their hand at investing through such reduced transaction costs and more consistent tax schemes across diverse types of investments.
Sales or transfers of shares listed on either local or foreign stock exchanges are consistently subject to a 0.1% STT, rather than being taxed under the capital gains tax (CGT) system.
Mr. Enriquez said that this change “has greatly brought us closer to the global industry.”
CGTs, which are imposed on profits of unlisted domestic and foreign shares have been equalized to a 15% rate through the law.
Prior to CMEPA, only sales of domestic shares received the 15% tax, while those of unlisted foreign shares were subject to an income tax of 25% for corporations and a progressive tax of up to 35% for individuals.
Mr. Enriquez also noted the benefits CMEPA provides to holders of Personal Equity Retirement Accounts (PERA).
The provision is an additional 50% tax reduction on employers that contribute equal or greater amounts to their PERA beneficiary employees.
PERA is a voluntary retirement saving program that encourages Filipinos to increase their financial security by investing in viable products.
Mutual funds, stocks, securities, and the like — which are nonspeculative, marketable, and provide regular income payments to investors — fall under such products.
Funds placed in the program may be withdrawn as the investor turns 55 years old and has made qualified contributions for at least five years.
THE BIGGEST ROADBLOCKIn reaping the law’s benefits and reaching its objectives, both analysts mentioned that the lack of financial literacy among Filipinos must be addressed first.
“While CMEPA is good, we have a lot of work to do in educating the Filipinos on savings and investments,” Mr. Francisco said.
“Financial literacy is still a big problem in the Philippines… we need to bombard [Filipinos] on the importance of this,” Mr. Enriquez added.
Financial literacy is defined by the BSP as the ability to make informed financial decisions and to maximize the potential benefits of financial resources.
The BSP’s latest financial inclusion survey (FIS) of 1,200 Filipinos in 2021 showed that only 2% of respondents correctly answered all six questions on basic financial literacy.
Financial concepts including division, risk-return trade-off, diversification, inflation, and simple compound interest rates were covered by the questions.
Results showed that 58% of all respondents were aware of portfolio diversification while only 32% knew how to calculate simple interest earned in saving accounts.
In addition, only 7% of respondents said they have attended seminars on financial literacy, while 54% expressed interest in doing so.
TREADING THE WRONG VENTURESMr. Enriquez said that Filipinos are more likely to look into get-rich-quick schemes rather than the discipline of managing their finances diligently.
“They are more susceptible to scams and online gambling,” he added.
TransUnion’s State of Omnichannel Fraud update for the first half of 2025 showed that phishing was the most prevalent scamming scheme in the Philippines.
Phishing involves the scammers’ impersonation of reputable companies to bait victims’ in providing sensitive information such as credit card details and bank account numbers.
More than three-fifths (63%) of surveyed Filipino consumers reported being targeted by scams and more than 10% ended up falling victim.
The study also reported that Filipino victims lost an average of $768 or more than P44,700 during the period.
On the other hand, Mr. Francisco said that Filipinos have also been “more conservative with their investments and expansions.”
The latest FIS reflected this downtick, showing that only 37% of adults surveyed had savings in banks from the 53% seen in the previous edition.
Likewise, adults with insurance slipped to 17% from the 23% seen previously.
“We are still educating them to save, so the next stage is to teach them to how and where to invest… we have to [show] them more options,” Mr. Francisco said.
Mr. Enriquez said that financial discipline must be prioritized regardless of financial status and that low earnings should not hinder Filipinos from expanding their financial portfolio.
He added that the highest consideration must be “how much you save rather than how much you make.”
JITTERS ALONG THE WAYBoth analysts also identified wobbly areas in the Philippine investment atmosphere which the act could have addressed further.
Mr. Enriquez said that the country still can catch up on global practices in government securities even with the law’s current provisions.
Individual Filipino investors face a 20% FWT on deals concerning government securities.
Among members of the Association of Southeast Asian Nations, only Thailand and Indonesia also impose FWTs on government securities, at 10% and 15%, respectively.
Additionally, Mr. Enriquez noted that a drawback in CMEPA is the increased tax on foreign currency bonds.
The interest income tax on foreign currency-denominated accounts climbed to 20% from the 15% imposed beforehand.
For the parties concerned to deal with this, Mr. Enriquez suggested that investors may opt for alternative investment instruments offshore where interest rates would be more attractive for them.
Meanwhile, Mr. Francisco said that there is still “a lot to be done” in reducing other fees such as those seen in the Philippine Stock Exchange listing, the Securities and Exchange Commission processing, custodial fees, and the like.
“Filing rules and documentations can be simplified, especially for small to medium enterprises, to encourage more listings,” he added
He also noted the persisting weakness of the stock market after CMEPA took effect, despite one of the law’s objectives being to boost the local bourse.
“Most investments are going towards bank deposits and fixed income investments,” he added.
THE PATH AHEADMr. Francisco said that attracting foreign investors will be key to maximizing the effectiveness of CMEPA in improving capital markets.
“There are macro issues to solve [in light of] CMEPA, we still have to [garner] more foreign direct investments as a lot of foreigners have shunned or left the Philippine stock market,” he said.
The latest BSP data on foreign direct investments show that cumulative investments up to June were down year on year by 23.8% to $3.42 billion from $4.49 billion.
The drop was attributed to monthly levels of nonresident’s net investment in equity capital with $57 million in outflows from the $85 million inflows a year earlier.
He added that talks to improve PERA and Real Estate Investment Trust laws should also be done to boost CMEPA investments moving forward.
On the other hand, Mr. Enriquez said that an awareness campaign is essential for the success of the law and its provisions.
“The tools, like PERA [and CMEPA] are there, but nobody is using them… there should be an aggressive awareness campaign on their benefits,” he said.
He added that the campaign should focus on the “grassroots level” — the employees, which the law aims to help in fund management.
Mr. Enriquez said Filipinos should learn and try investing to know how much the CMEPA offers and enables them.
“The main argument is that ‘I am not earning enough’ […] but a lot of programs have democratized investing,” he added.
Widely used mobile wallets such as GCash and Maya offer investment opportunities in mutual funds and unit investment trust funds through various fund providers.
“[Filipinos] should have a legitimate way to grow their money; you don’t have to start big, you just have to start somewhere,” Mr. Enriquez said.
