Rep. Antonio Tinio (Courtersy: ACT Teachers Party-List Facebook)

 

The law imposing taxes on interest on savings and time deposits has stirred up opposition, with critics claiming that the Capital Markets Efficiency Promotion Act (CMEPA) punishes the working and middle-class Filipinos and protects the rich.

The Department of Finance (DOF) has clarified however, that the measure does not impose new taxes and was merely meant to “correct an unfair system”.

In a statement, ACT Teachers party-list Rep. Antonio Tinio described CMEPA as a “predatory taxation scheme” that targeted the savings and income of ordinary Filipinos “while letting the wealthy off the hook.”

He maintained that the government already taxes income and consumption.

“Now, even when you save, the government taxes you. Then they say Filipinos lack financial literacy,” Tinio said, adding that the Makabayan bloc in Congress had rejected the bill.

“Instead of giving incentives to those with modest savings, the government targets them while billionaires and big corporations continue to enjoy tax breaks and loopholes,” Tinio asserted.

Social media posts charged that CMEPA imposes a new tax on savings, prompting the DOF, finance experts and the banks to issue clarifications.

Finance Secretary Ralph Recto said on Thursday that only the interest earned from short-term deposits — such as checking and savings accounts, and not the deposit — are being taxed.

This system has been in place for decades, in accordance with the Tax Reform Act of 1997, Recto said.

To level the playing field for all Filipinos however, the tax on interest income from long-term time deposits, or those parked in the bank for over five years, has also been set at 20 percent.

Before CMEPA, time deposits with maturity periods of more than five years were exempt from interest income tax, which the DOF and some tax experts say favored the wealthy minority.

“There is no truth that CMEPA discourages people from saving and investing. Actually, CMEPA is not just a revenue bill, but an act to boost our capital markets and allow for greater participation, especially among ordinary Filipinos,” Recto said in a statement.

“Investing is now not just for the rich, but is for every Filipino who dreams of financial security and a better future, who can now achieve that by diversifying their savings and investments,” he said.

Recto cited other saving programs offered by the government, such as Pag-IBIG MP2 savings and Retail Treasury Bonds (RTBs), as options for the public to invest in.

The Bangko Sentral ng Pilipinas (BSP) 2021 Financial Inclusion Survey shows that only 8 million of 77 million Filipino adults own investment products — equivalent to one out of every ten Filipinos.

Before CMEPA was implemented, the Philippines had the highest stock transaction tax (STT) in the ASEAN region at 0.6 percent, disincentivizing investors from trading.

CMEPA reduced the STT on the sale or exchange of shares to 0.1 percent, making investing in the Philippine Stock Exchange (PSE) more cost-competitive.

“The other benefit that people are not really highlighting is on the equity side––sales tax has been reduced from 60 basis points to just 10 basis points so it further reduces friction costs for those who trade in the market,” Sun Life Investment Management President Mike Enriquez said in an interview.

Ordinary Filipino investors stand to benefit since a lower STT increases their net returns by minimizing the amount of money deducted from the sale of their shares of stock. Lower transaction costs will also contribute to increased trading activity, leading to tighter spreads.

CMEPA also reduced the documentary stamp tax (DST) or stamp duty on the original issuance of shares by corporations from 1 percent to 0.75 percent, lowering the cost of capital and allowing more investors to participate in the market.

The DST on mutual funds and Unit Investment Trust Funds (UITFs)––collective investment schemes which are popular among young professionals and middle-class savers, is now tax-exempt.

These pooled investment schemes allow a single investor to put money into a broader range of asset types and share risks and benefits with other participants––a powerful means to grow one’s portfolio.

“Bottomline is to encourage people to save more, to invest more, to build their retirement funds, build their wealth funds, financial literacy, make their money work better for them,” RCBC chief economist Mike Ricafort said.

Tax on interest income is now a uniform final withholding tax (FWT) rate of 20 percent, regardless of the tenure of the financial instrument. This means no more preferential treatment for wealthy depositors.

“That was what is good in what CMEPA did. The tax-induced distortion in making investment decisions has been removed,” Benedicta Du-Baladad of Du-Baladad and Associates (BDB Law) said in an interview.

The removal of tax exemptions on passive income earned by government-owned and controlled corporations (GOCCs) means increased revenue collections for the government to support public services.

Tinio, in the statement, suggested that the Marcos administration junks CMEPA and the CREATE Law which allegedly enhances the country’s fiscal incentives regime — and instead support a billionaire wealth tax “if it truly wants an equitable tax policy.”

“Imposing a wealth tax on the top 1 percent can yield billions for social services, education, and health, directly benefitting the majority of Filipinos living in poverty,” Tinio said.

He said that they would refile the Super-Rich Tax, which seeks to impose a 3-percent wealth tax on billionaires.

He said the measure could generate at least P98 billion which is enough to provide cash subsidies for millions of poor families.

“While 20 million Filipinos are poor, the government refuses to tax the billionaires who have the real capacity to contribute funds to the nation. It’s time to tax the billionaires, not ordinary Filipinos,” he said.

Imposing a wealth tax on the richest one percent in the country could prove difficult due to challenges such as the bank secrecy law, former Bureau of Internal Revenue Commissioner Kim Henares had said.

 

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