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The Securities and Exchange Commission (SEC) clarified that the Capital Markets Efficiency Promotion Act (CMEPA) does not introduce new taxes concerning the 20 percent tax on interest income on long-term deposits, but instead standardizes the tax rate across investment instruments.
“The tax code previously discriminated against short-term deposits by unduly burdening them just because they cannot keep cash in banks for longer periods. The new law merely standardizes the tax on interest income for all types of deposits,” SEC Chairman Francis Ed. Lim said.
Meanwhile, the harmonization of the capital gains tax to a flat 15 percent on shares of foreign corporations aligns the Philippine tax regime with global standards and is seen to help attract more foreign investments.
The SEC expects investors to book more savings with the enactment of the CMEPA, and this will lead to enhanced liquidity in the stock market.
The CMEPA, which took effect on July 1, reduced the stock transaction tax to 0.1 percent from 0.6 percent. The old tax rate was previously the highest in the ASEAN region.
“The reduced stock transaction tax is one of the most important reforms under the CMEPA, as it brings the rate in the Philippines at par with our peers in ASEAN,” Lim said.
He added that “The previous rate had the effect of discouraging the public from investing in the stock market, especially those who may want to engage in bulk transactions. With the lower tax, the savings that investors get can be reinvested back to the capital market.” he added.
The new law is also expected to attract more Filipinos to increase their retirement funds through the Personal Equity and Retirement Account (PERA) by enabling employers to claim an additional 50 percent tax deduction for PERA contributions, provided they match or exceed the employee’s contribution.
Further, the CMEPA reduces the documentary stamp tax on the original issuance of shares of stock to 0.75 percent from one percent of par value, incentivizing companies seeking capital through initial public offerings or follow-on equity listings.
