Recto: Only 0.4% of deposits affected by CMEPA interest income tax rate

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Estimates using data from the Bangko Sentral ng Pilipinas show only 0.4% of total deposits will be affected by the 20% interest income tax rate of the Capital Markets Efficiency Promotion Act

MANILA, Philippines – The implementation of the Capital Markets Efficiency Promotion Act (CMEPA) angered many netizens for supposedly slashing their interest earnings.

CMEPA removes tax breaks on long-term savings with a maturity period of five years. This means interest earned on all financial instruments, with exceptions such as the PAGIBIG MP2 program, will be taxed at a uniform 20% rate.

Under the National Internal Revenue Code of 1997, a depository bank withholds the following percentage of interest income as tax:

• Less than three years – 20%
• Three years to less than four years – 12%
• Four years to less than five years – 5%

However, misinformation online made some people believe that the tax rate targets people’s deposits instead of the interest it earns. Others slammed the uniform tax rates, claiming it puts additional taxes on prudent Filipinos.

“For decades, that’s how Filipino families survived… And now? You’re punished for it,” one blogger said.

Interest earned by deposits of three years and below have always been taxed at 20%. These are often seen in passbooks and bank statements, and it has also been implemented since the National Internal Revenue took effect in 1998.

Sample of interest income tax withheld from an online bank statement

The Department of Finance (DOF) previously clarified that CMEPA only taxes interest income, and the new rate only applies to long-term deposits of over five years.

Estimates using data from the Bangko Sentral ng Pilipinas, only 0.4% of all total deposits will be affected by CMEPA’s uniform tax rate since these were exempted from interest income tax under previous laws.

The remaining 99.6% of all deposits were already subject to the 20% interest income tax rate long before CMEPA took effect.

The standardized tax rate is not retroactive and will not apply to financial instruments that were issued prior to July 1.

“Ang tinanggal lang yung sa mayayaman. Ang pangkaraniwang pilipino wala rin yan, particularly yung 0.4% na dati ang exempted ngayon ay may buwis na rin,” he said in an interview with dzBB on Friday, July 18.

(CMEPA only removed tax exemptions for the rich. Ordinary Filipinos will not be affected, only the 0.4% that were previously exempted will be taxed.)

Products such as pension accounts of the Social Security System and Government Service Insurance System are exempted from the 20% interest income tax.

 – Rappler.com