Tax Articles

Proposed Changes under CMEPA

By: Atty. Mabel L. Buted

Mabel L. Buted Partner   +632 8403-2001 loc.160 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

Last year, I wrote about the proposed amendments under the CMEPA bill (the Capital Markets Efficiency Promotion Act) based on the version passed by the House of Representatives (H.B. No. 9277). The CMEPA bill was initiated as an “alternate” bill to PIFITA, or the Passive Income and Financial Intermediary Taxation Act, pending the passage of the counterpart PIFITA bill by the Senate. Early this year, the Senate approved on final reading its own version of the CMEPA bill (S.B. No. 2865), introducing significant changes and incorporating substantial provisions previously suggested in PIFITA. The changes were later approved by the Bicameral Conference Committee on February 5, 2025. Here is a preview of the proposed revisions under CMEPA bill, as approved by the Bicameral Conference Committee.

In CMEPA, taxation on interest earned from bank deposits, deposit substitutes, trust funds, and other similar arrangements is simplified. To recall, under our existing laws, taxpayers are subject to different tax rates or to tax exemption on their interest income, depending on a lot of factors, such as the taxpayer’s classification, maturity period of the instrument, and the currency deposit unit system of the bank where they invested their money. Under CMEPA, all taxpayers will be subjected to 20% final withholding tax on their interest. This rule applies to all individuals and corporations, except in the case of non-resident aliens not engaged in trade or business (NRANETBs) and non-resident foreign corporations (NRFCs) that will remain subject to 25% final tax on all interest. The rule effectively removes the previous tax exemptions enjoyed by certain individuals on interest from long-term deposits and by non-residents on income earned under the expanded foreign currency deposit unit system (EFCDU) of banks.

Gains from sale or retirement of bonds, debentures, or other certificate of indebtedness with maturity of more than five (5) years are no longer excluded from gross income. Instead, the CMEPA excluded from gross income the interest income and gains of only the bonds issued by the Republic of the Philippines or any of its instrumentalities to finance capital expenditures covered by the Philippine Development Plan and its equivalent and other high-level priority programs of the national government, as determined by the Secretary of Finance.

The present 15% capital gains tax (CGT) due on sale of shares in domestic corporation not traded through local stock exchange was extended to transfer of shares held in a foreign corporation not traded through stock exchange, local or foreign. The tax exemption on gains from redemption of shares of stock presently enjoyed by mutual fund companies was also extended to redemption of units of participation issued in mutual funds and in Unit Investment Trust Funds (UITFs).

The proposed bill further significantly reduces the stock transaction tax, from 0.60% to 0.10% tax rate, applicable to sale of shares of stock listed and traded through the local stock exchange. The reduced rate was extended to cover also shares of a domestic corporation listed and traded through foreign stock exchange. Under CMEPA, initial public offerings will no longer be subject to stock transaction tax.

There are also changes in the imposition of documentary stamp taxes (DST). One significant amendment is the imposition of DST at a uniform tax rate of 75% of 1% based on the value of the transaction for sale or transfer of bonds, debentures, certificates of stock, or indebtedness issued in foreign countries. Under CMEPA, DST on original issuance of shares of stock is reduced – from the current 1% to 0.75% – based on the par value of the shares or actual consideration in the transaction, if there is no par value. The following transactions will be exempted from DST: (a) original issuance, redemption, and other disposition of shares in mutual funds, and (b) issuance of certificate or other evidence of participation in mutual funds or UITFs.

While we are yet to see the impact of these proposed changes, we highly hope that the bill will achieve its purpose of boosting the country’s competitiveness in the investment markets by making our tax system simpler, fairer, and more efficient.