MANILA, Philippines — Bank executives are urging the public to better understand the real impact of the Capital Market Efficiency and Promotion Act (CMEPA), clarifying that the removal of tax exemptions on long-term deposits and foreign currency accounts affects only a small portion of depositors.
UnionBank president and CEO Ana Delgado told The STAR that initial market reaction was driven largely by misinformation, particularly on social media, where many users assumed their entire savings would be taxed.
“There’s a lot of misconception around how withholding tax would have affected (deposits). People are making it out to be that your entire savings must be taxed, but it’s not so. It’s interest income that’s taxed,” she said.
“Frankly, the majority of Filipinos are not affected by this. The change applies only to dollar savings and long-term deposits like five-year time deposits. Most people have peso savings and short-term deposits and there’s no change for those.”
Starting July 1, CMEPA imposed a uniform 20 percent final withholding tax on interest earned from deposit products such as savings accounts, time deposits, trust funds, deposit substitutes and negotiable certificates of deposit, regardless of how long the money is held.
Before this, interest income from time deposits with a term of five years or more was tax-free. Even deposits held for over three years but less than five years had lower tax rates.
The new law also raised the tax on interest from foreign currency deposits of Philippine residents to 20 percent, up from the previous 15 percent.
Delgado noted that noise around the issue has subsided in recent weeks as banks and regulators issued clarifications.
“We support the government’s decision to raise funds for the country. I think people are starting to understand the issue better,” she said.
BPI president and CEO Jose Teodoro Limcaoco echoed this sentiment, stressing that CMEPA simply levels the playing field for all deposit products and does not introduce a new tax.
“Let’s be very clear. For almost 30 years now, we’ve had a 20 percent withholding tax on deposits. That hasn’t changed,” Limcaoco said.
“What CMEPA does is remove the exemption for deposits longer than five years, which only a small percentage of people have. This rationalization is actually fair for small depositors because it removes the advantage of large ones.”
PNB president and CEO Edwin Bautista said the banking industry has long seen limited uptake for five-year time deposits, which are more common among digital banks that need long-term funds.
He noted that clients seeking long-term investment options can consider alternative instruments that remain exempt from tax, such as Retail Treasury Bonds (RTBs).
“There are many alternatives. If you want to invest in five-year money, you can buy bonds instead,” Bautista said.
“The banks have never really been big on five-year time deposits… As far as I know, in my many years of banking, we never really offered anything more than two to three years,” he added.
GoTyme co-CEO Albert Tinio said it might be too early to assess the full behavioral impact of CMEPA on depositors. “I think it’s too early to gauge whether usage or deposits will drop,” he said.
Meanwhile, Salmon co-founder and Rural Bank of Sta. Rosa chairman Raffy Montemayor said while customers rushed to open five-year time deposits in June to lock in tax exemptions before the rules changed, deposits have continued to come in across various terms.
“Close to 50 percent of our time deposits in June were five years. But since then, we’re seeing healthy interest in one- to five-year terms. People are still looking for high yields, and they go to the banks they trust,” Montemayor said.
While banks say the CMEPA tax changes may shift investment preferences at the margins, they maintain that financial inclusion and savings habits are unlikely to be significantly disrupted, especially as public understanding improves.
The Securities and Exchange Commission also expects investors to generate more savings with the enactment of CMEPA, which in turn, will boost liquidity in the stock market.
“The reduced stock transaction tax is one of the most important reforms under the CMEPA, as it brings the rate in the Philippines at par with our peers in ASEAN,” SEC chairman Francis Lim said in a statement. — Richmond Mercurio
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