As the wise Greek philosopher and naturalist Theophrastus said, “Time is the most valuable thing a man can spend.” In a period where everything moves at a fast pace, the value of time has been highlighted as one of the most important resources one can have. This is why our government continues to invest in infrastructure, implement policies like the Non-Contact Apprehension Policy (NCAP), and introduce traffic management schemes—efforts aimed at helping us reclaim even just a few more minutes of our day. Whether that extra hour is spent being productive at work or enjoying moments with loved ones, its value is undeniable.
In the realm of investments, the principle is just as clear: time is money. And where there is money, tax naturally follows. Amidst the constant hustle of life, we can channel our resources into various passive income streams—be it through bank savings accounts or by investing in company stocks—with the expectation that their value will appreciate over time. These channels allow us to generate extra wealth, offering a path for better financial comfort and security than if we simply held onto idle cash.
With the introduction of the Republic Act (RA) No. 12214, otherwise known as the Capital Markets Efficiency Promotion Act or “CMEPA”, signed into law last 29 May 2025, taxpayers can expect an improved, simpler, and more equitable tax system as regards their passive income. The goal of the new law is to promote and develop the competitiveness of our local capital markets. The reforms are designed to encourage Filipinos investors, be they small or large, to invest more. The law highlighted amendments to the Tax Code, as follows, among others.
Simplification and standardization of taxation on interest income and royalties
Previously, interest income was subject to different tax rates ranging from exempt to 20%. This created confusion for some taxpayers. With the implementation of CMEPA Law, the tax system has been simplified. All interest income from any currency bank deposit, deposit substitutes, trust funds, and similar financial instruments is now uniformly taxed at a 20% final rate. This change simplifies compliance and promotes fairness among investors.
The above includes interest income from foreign currency deposits, which is now subject to a higher final tax rate of 20%, up from the previous 15%. This change aims to support local banks and eliminate the preferential tax treatment granted to foreign currency deposit accounts.
The updated tax rules apply to resident individuals, citizens, nonresident aliens engaged in business in the Philippines, and domestic corporations, while nonresident aliens not engaged in business and nonresident corporations remain subject to a 25% final tax on all Philippine-sourced income.
Lastly, royalty payments, which were previously included under the same category as interests, are now distinguished separately and subjected to 20% as well, with the exception of royalty payments on books, other literary works, and musical compositions, which are subject to 10%.
Reduction of stock transactions tax
The stock transaction tax (STT) on the sale or exchange of listed shares of domestic corporations has been significantly reduced from 0.6% to 0.1% of the gross selling price or gross money in value. In addition, the STT now clearly applies to transactions in both the local and foreign stock exchanges. These reforms aim to enhance market liquidity, reduce transaction costs, and make the Philippine capital market more competitive regionally.
Capital gains tax on the sale or disposition of shares of stock of foreign corporations
Under the CMEPA law, a 15% final capital gains tax is now imposed on net gains from the sale, exchange, or transfer of shares in foreign corporations—aligning them with the existing tax treatment for domestic shares. This reform eliminates the previous tax advantage for foreign investments, creating a more level playing field and encouraging greater investment in local companies.
Reduced DST due to Original Issuance of Shares
Under the same law, the Documentary Stamp Tax (DST) on the original issuance of shares by corporations has been reduced from 1% to 0.75% of the shares’ par value, lowering the cost of capital formation.
Enhanced Deductions from Gross Income in relation to Personal Equity and Retirement Account (PERA) Act
Under the CMEPA law, employers who contribute an amount equal to or greater than their employees’ contributions to a Personal Equity and Retirement Account (PERA), as established under RA No. 9505, are entitled to an additional tax deduction equal to 50% of their actual contributions. This is still subject to the maximum allowable contribution of PhP100,000.00, or its equivalent in any convertible foreign currency, for local employees. This incentive encourages private employers to actively support their employees’ retirement savings while benefiting from reduced taxable income.
Key Takeaways
The CMEPA Law takes effect on transactions starting 01 July 2025. It marks a significant advancement, enhancing both the ease and value of taxpayers’ investments while contributing positively to the growth of the Philippine capital market. As we await the law’s effectivity and the subsequent release of the Bureau of Internal Revenue’s (BIR) Implementing Rules and Regulations, it is my hope that taxpayers will seize these beneficial changes to optimize their earnings and support the market’s development. We are often so focused on our daily duties and responsibilities that we sometimes overlook the fact that we can simply use time to generate a bit of passive income on the side. In a world where every second counts, remember: time is the one resource we can never get back. Let’s make the most out of it.
Let's Talk Tax is 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 10 June 2025
