The Department of Finance (DOF) sets the record straight on the purpose and provisions of the Capital Markets Efficiency Promotion Act (CMEPA), cautioning the public against fake news.

CMEPA does not impose a new tax, instead standardized the tax rate on interest income to correct an unfair system that favored the wealthy.

Under CMEPA, the tax on interest income has been equalized at 20% to simplify compliance, eliminate confusion, and ultimately level the playing field for all Filipinos.

Prior to the law’s passage, the National Internal Revenue Code of 1997 already stipulated a 20 percent final tax on interest earned from bank deposits with a maturity of less than three years.

In fact, estimates using Bangko Sentral ng Pilipinas (BSP) data show that more than 99.6 percent of total deposits were already subject to the 20% tax rate, while only 0.4 percent enjoyed preferential rates.

More specifically, the deposits that benefited from favorable rates are those with a maturity period of more than five years, which are tax exempt, while deposits that mature in 4 to 5 years and 3 to 4 years are subject to just 5% and 12 percent tax, respectively.

This special tax treatment favored depositors who can afford to park their savings in long-term deposits, making the tax system unfair for short-term depositors who face liquidity issues and need immediate access to their funds.

The CMEPA merely corrects this outdated and inequitable system that placed a heavier burden on ordinary Filipinos who do not have the extra cash to put in banks for longer periods. With the new law, interest income is now taxed uniformly with a flat rate of 20 percent, regardless of the maturity period.

The standardized tax rate is not retroactive and does not apply to financial instruments that were issued or transacted prior to July 1, 2025. Therefore, existing long-term deposits made prior to the effectivity of the law will continue to enjoy the preferential rate until their maturity.

The unified rate also does not apply to provident savings programs under the Social Security System (SSS), Government Service Insurance System (GSIS), and Pag-IBIG (such as MP2). These savings programs remain exempt from tax. DOF Information Management Service