CMEPA impact on savings stirs debate

A newly implemented law aiming to simplify and equalize the country's capital market tax system is facing criticism online, with some arguing that it could hurt small savers more than it helps level the playing field.

- By KEISHA TA-ASAN

Passed into law last year, the Capital Market Efficiency Promotion Act (CMEPA) unified the final withholding tax on interest income to a flat 20 percent. It removed longstanding exemptions on long-term bank deposits and bond investments that were previously tax-free if held for at least five years.

On social media, the reform has drawn criticism for what some see as an undue burden on small investors. For instance, someone who saved P200,000 in a five-year bond at four percent interest would have earned P8,000 annually, which is tax-free under the old system. Under CMEPA, that is now taxed 20 percent, reducing the annual take-home to P6,400.

This has raised concerns about fairness, with some questioning whether a P2-million income spread over two years should be treated the same as a high net-worth investment for tax purposes.

Economist Reinielle Matt Erece said the government's push for a flat tax is part of its broader fiscal consolidation plan, where it aims to raise revenues while reducing reliance on borrowings.