CMEPA: From law to implementation

On July 1, the Capital Markets Efficiency Promotion Act (CMEPA), or Republic Act No. 12214, took effect. As specifically provided in the law, the State recognizes the necessity of a simpler, fairer, more efficient, and regionally competitive passive income tax system to encourage savings, as well as develop and deepen capital markets.

- MA. LOURDES POLITADO-ACLAN

Thus, CMEPA was signed into law to encourage broader investment in the capital markets and promote inclusive growth.

While the intent of the law is clear, misinformation surfaced when the law took effect in July. Viral social media posts circulated claiming that bank deposits in the Philippines will be taxed at 20%. Though these claims are inaccurate and misleading, many were quick to believe the claims. Further posts even advocated just keeping money at home, or spending, instead of saving.

The Department of Finance (DoF) and Malacañang have refuted these posts, clarifying that taxation applies not to the savings themselves, but solely to the interest earned from those savings. Furthermore, the Bureau of Internal Revenue (BIR) released the necessary rules and revenue regulations for the implementation of CMEPA on Aug. 5. Among these are Revenue Regulations (RR) No. 20-2025 and 21-2025.

RR Nos. 20-2025 and 21-2025 were issued to implement the amendments of CMEPA to the taxation of certain passive income.

INTEREST INCOME

Effective July 1, all interest income earned by Filipino citizens, resident foreigners, and nonresident foreigners engaged in trade or business, domestic and resident foreign corporations, from both peso and foreign-currency bank deposits or deposit substitutes, trust funds and other similar arrangements, regardless of their nature or tenure, are now subject to 20% final withholding tax. Interest income of nonresident foreigners not engaged in trade or business and nonresident foreign corporations will still be subject to a 25% final withholding tax or tax treaty rate. Income of nonresidents, whether individuals or corporations, from transactions with depositary banks under the expanded system, remain exempt from income tax.