CMEPA Bill and its future impact

Last 27 January 2025, the Senate had its third reading of the Capital Market Efficiency Promotion Act (CMEPA), which paves the way for this bill’s eventual approval. Senate Bill No. 2865 was passed by senators Sherwin Gatchalian and Joel Villanueva to push Filipinos to invest more on capital markets. "CMEPA will not only make investments more affordable, but it will also empower our countrymen to take control of their financial futures," Gatchalian said following the Senate's approval of the proposed measure on third and final reading. This act originated from the House of Representatives as House Bill No. 2977 with the intention of aligning the Philippines’ capital tax rate more closely with its ASEAN neighbors. CMEPA was approved by the Bicameral Conference Committee last 05 February 2025.

CMEPA’s basic objectives are to promote a fairer and simpler passive income tax system that will encourage savings and capital investment; to increase capital mobility in an ever-globalizing world; and to incentivize investment in the trade of equity and security debts. The bill defines passive income as income that is earned from sources that do not require a taxpayer’s active pursuit and performance of trade or business and is not subject to value-added tax imposed in the Tax Code.

CMEPA proposes lowering the stock transaction tax, lowering the documentary stamp tax, and removing the preferential tax rates for various types of passive income, as follows:

• For interests, there will just be one rate, a 20% tax rate, applicable to all kinds of interest, instead of four tax rates depending on the source of interest income. Previously, interest income on bank deposits was taxed at 20%, interest income from FCDU banks of individual residents at 15%, interest income from long-term investment based on remaining maturity at 5% to 20%, and interest income from FCDU banks on non-residents which is exempt.
• Gains from the sale of bonds debentures or other certificates of indebtedness have been repealed, hence, making such gains taxable.
• The distinction between royalties from books and literary works and other royalties in general have been done away with under the CMEPA as the proposed law now imposes a uniform tax rate of 20%. 
• Sales of unlisted shares of stock issued by foreign corporations previously taxed at progressive income tax rate for individuals and the corporate income tax rate for corporations are now taxed with the same rate as those issued by domestic corporations at 15%. 
• Reduction of the amount of stock transaction tax from 0.6% of shares traded in local stock exchange to 0.1% of shares traded in local and foreign stock exchanges.
• One documentary stamp is taxed at 0.75% on the following:
  • Original issuance of shares of stock which is previously 1% of the par value
  • Issuance of bonds, debentures, and certificates of stock or indebtedness issued in foreign countries which are previously the same rate similar to the DST imposed on similar instruments issued, sold or transferred in the Philippines.

The proposed lower tax rates shall encourage investors to try their stake at earning passive income and allow them to pay more definite taxes based on the type of passive income they earned.

After the third reading of this bill, and after the midterm elections this May 2025, the succeeding Congress, both Senate and House of Representatives, will proceed to present the final bill for the President’s approval or veto. Once the bill is signed into law, and after the issuance of its implementing rules and regulations, the proposed rates can be imposed by the BIR.

Let’s Talk Tax, a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

As published in BusinessWorld, dated 15 April 2025