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February 25, 2025 | 12:00am
In a bid to boost the country’s capital markets, Congress approved the bicameral conference report on the Capital Markets Efficiency Promotion Act (CMEPA) bill.
The CMEPA bill will introduce amendments to the Tax Code aimed at optimizing the taxation of capital markets, as well as the products and transactions crucial to their development. The bill likewise seeks to establish a simple, fair, efficient and regionally competitive passive income tax system to encourage, develop and deepen the capital markets.
Under the CMEPA bill, Stock Transaction Tax (STT), which is applicable to sale of shares in a stock exchange, is proposed to be lowered from 6/10 of one percent to 1/10 of one percent, based on the gross selling price or gross value in money of the shares sold or traded. For sale of shares outside the stock exchange, the 15 percent Capital Gains Tax (CGT) will be applicable, even if the shares sold are that of a foreign corporation.
The CMEPA bill also proposes to lower the Documentary Stamp Tax (DST) on original issuance of shares from P2.00 for every P200 based on par value of shares issued, to 75 percent of one percent. However, the original issuance, redemption, or other disposition of shares in mutual fund companies, as well as the issuance of certificates or other evidence of participation in mutual funds or unit investment trust funds, is proposed to be exempt from DST.
In addition, the CMEPA bill proposes a uniform 20 percent Final Withholding Tax (FWT) rate on interest income from any depositary bank received by any person or corporation other than non-resident aliens not engaged in trade or business in the Philippines and non-resident foreign corporations, both of whom will still be subject to 25 percent FWT, and on interest income from long term deposits or investments received by individuals except nonresident aliens not engaged in trade or business in the Philippines who will still be subject to 25 percent FWT.
Aside from changes in tax rates, the CMEPA bill proposes to remove certain tax exemptions such as the tax exemption granted to income derived by individuals and corporations, except Foreign Currency Depositary Units of banks and Offshore Banking Units from transactions with FCDUs/Expanded FCDUs and the tax exemption on trading gains realized from the sale or exchange of bonds, debentures or other certificates of indebtedness with a maturity of more than five years.
Hopefully, this legislation will encourage more investments in the Philippines, strengthen the country’s economy and signal positive developments ahead.
Jose Bernard Basallaje is a senior manager from the Tax Compliance Team under the Tax Group of KPMG in the Philippines (R.G. Manabat & Co.), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Jose Bernard Basallaje or Mary Karen Quizon-Sakkam through [email protected], social media or visit www.home.kpmg/ph.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.
