IN BRIEF:
• CMEPA introduces significant changes aimed at optimizing the taxation of capital markets through a simplified and equitable tax system.
• The law seeks to level the playing field by promoting a fairer tax structure that will empower ordinary Filipinos to participate in the capital markets and diversify their sources of income.
At the core of a civilized society lies a sound and progressive tax system that empowers the state to fulfill its functions and advances public welfare. In the Philippines, taxes accounted for approximately 86% of government revenue in 2024, supporting public expenditures across vital sectors such as education, healthcare, infrastructure, and national defense. This underscores the fundamental principle known as the lifeblood doctrine — that taxation is essential to survival of a nation.
However, beyond its primary role in fiscal adequacy, tax policy is also increasingly used as a tool in strategically regulating economic growth and development. Various governments place much emphasis on the design of tax structures that would not only raise the necessary revenue, but also influence investment and consumption, improve efficiency, and promote equity. Over time, the Philippine tax system has sought to achieve this through the introduction of landmark reforms, such as TRAIN, EoPT, CREATE and CREATE MORE, RPVARA, VAT on digital services, and, recently, Republic Act No. 12214, or the Capital Markets Efficiency Promotion Act (CMEPA).
Signed into law by President Ferdinand R. Marcos, Jr. on May 29, CMEPA introduces significant changes aimed at optimizing the taxation of capital markets through a simplified and equitable tax system.
KEY AMENDMENTS UNDER CMEPA
Effective July 1, CMEPA introduced a range of reforms that incentivize investments in capital markets and reduce transaction costs.
1. The uniform 20% final tax rate eliminates the exemption on interest income earned by individuals from time deposits with a maturity of at least five years (and consequently, the tiered rates upon pre-termination). Likewise, the 15% preferential rate on interest income from foreign currency deposits is increased. However, tax exemption and preferential rate on financial instruments issued or transacted prior to July 1 becomes subject to the prevailing tax rate at the time of its issuance for the remaining maturity of the relevant agreement.
2. CMEPA repeals the income tax exemption previously granted on gains derived from the sale and other disposition of bonds with a maturity period of more than five years.
3. Foreign shares not traded through a stock exchange are subject to the 15% capital gains tax.
4. Significant reduction in stock transaction tax from 0.6% to 0.1% of the gross selling price or gross value in money. Notably, the scope is expanded to cover not only the sale or exchange of shares listed and traded through a local stock exchange, but also the disposal of domestic shares listed and traded on foreign stock exchanges.
5. The documentary stamp tax for the original issuance of shares of stock has been reduced from 1% to 0.75% based on the par value of such shares of stock (now comparable to the rate on debt instruments).
CMEPA UNDER A CRITICAL LENS
While CMEPA is relatively new, it has generated considerable buzz. Although generally praised by policymakers and market stakeholders, the law has also drawn controversy, fueled in part by the rapid spread of misleading information on social media. The alleged imposition of taxes on savings prompted strong backlash and panic from the general public. The Department of Finance (DoF) has since clarified that the law merely standardizes existing tax rates and does not impose a new tax on savings. Instead, CMEPA corrects a long-standing imbalance in the tax system that disproportionately favored the wealthy. According to the DoF, the law seeks to level the playing field by promoting a fairer tax structure that will empower ordinary Filipinos to participate in the capital markets and diversify their sources of income.
Despite this clarification, skepticism remains. Critics argue that many of the law’s benefits, such as simplified tax rates, lower transaction costs, and alignment with regional markets, disproportionately favor the high-income earners who are more likely to own and invest in stocks and bonds. Even tax reforms that seem neutral, such as the flat 20% final tax rate, may have a regressive impact, especially for small savers to whom every peso of interest income counts.
These criticisms highlight deeper systemic issues in economic disparity. As of 2024, the Bangko Sentral ng Pilipinas (BSP) reported that only 25% of households had savings, majority of which kept their money in a bank. With the remaining 75% of households lacking the necessary disposable income to save, investing is not just hard; it seems impossible. In addition to economic disparity, the Philippines also faces the problem of financial literacy. In 2021, only 2% of Filipinos were able to correctly answer all six basic financial literacy questions in the Financial Inclusion Survey conducted by the BSP.
The inadequacy in financial knowledge renders the general public vulnerable to predatory financial schemes, poor investment decisions, and fake news — as seen in the recent backlash over the misinterpretation of CMEPA’s provisions. Given the current situation, even the most well-intentioned tax reform remains out of reach to the ordinary Filipino. The question remains, then: who is best positioned to take advantage of and benefit from efficient capital markets?
Despite these challenges, the government has made strides toward building a more inclusive financial system. The National Strategy for Financial Inclusion (NSFI) developed a roadmap that aims to improve access to finance, especially for the underserved. Since its launch, account ownership in the Philippines has increased from 29% in 2019 to 56% in 2021, with over 22 million Filipinos gaining access to formal accounts (e.g., e-money, bank deposit, accounts with microfinance NGO, cooperatives and savings & loan associations, etc.). The NSFI also reported key milestones in the promotion of digital finance, strengthening financial education, and consumer protection.
A LONG-TERM VISION OF FINANCIAL INCLUSION
It is important to recognize that CMEPA is part of a broader, long-term strategy. As the Organisation for Economic Co-operation and Development (OECD) acknowledges in one of its tax policy studies, while certain tax reforms are intended to improve economic performance, they can also lead to temporary inequities in the tax system. Particular groups may benefit more in the short run while others bear a disproportionate share of the costs. Since the economic benefits of these tax reforms are usually realized over time, the efficiency gains cannot immediately offset the additional burden felt by the marginalized.
As policymakers navigate the trade-offs between efficiency and equity, they must remain vigilant to ensure that tax reforms do not deepen existing inequalities. A truly progressive tax system isn’t just about growth — it’s about growth that includes everyone, especially the underserved and vulnerable communities.
While many Filipinos may not immediately benefit, the goal is to gradually open the capital markets to a wider base of participants through lower transaction costs, optimized tax structures, and simplified compliance. These tax reforms can eventually create a more accessible financial system where even smaller Filipino investors can start to build wealth.
While there is still much work to be done, the goal to democratize access to wealth-building opportunities is clear. If implemented in tandem with inclusive strategies, CMEPA may truly realize its goal of efficient and accessible capital markets.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
Jay A. Ballesteros is a financial services tax partner and Karenza Marie S. Gonzales is a financial services tax senior associate, both of SGV & Co.