DoF clarifies no new tax on bank deposits

Manila, Philippines – The Department of Finance (DoF) clarified on Thursday, July 17, that a law that took effect early this month “does not impose a new tax” on bank deposits.

The statement was released after Finance Secretary Ralph Recto came under fire on social media, with users confusing the Capital Markets Efficiency Promotion Act (CMEPA) as anti-poor. Some comments went as far as blaming Recto for sponsoring other laws that raised the value added tax.

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

The tax under CMEPA was a levy on the yield that lenders pay out depositors for parking their money in banks. Before the law was passed, 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.

But that 1997 law gave favorable rates to savers whose deposits mature for a longer period. The interest on deposits falling due in four to five years are taxed 5 percent, 12 percent for those maturing in three to four years, while the yield on savings parked for over five years are exempted from the tax.

“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 statement read.

“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,” it added.