By: Christianne Grace F. Salonga & Emmanuel S. Bongco
On 29 May 2025, the Philippine government enacted Republic Act No. 12214, otherwise known as the Capital Market Efficiency Promotion Act (CMEPA), introducing comprehensive amendments to the National Internal Revenue Code of 1997. CMEPA aims to enhance the efficiency, simplicity, and competitiveness of the Philippine capital markets through targeted tax reforms.
CMEPA is grounded on the recognition that robust and efficient capital markets are essential to economic development. Accordingly, it advances several core policy objectives: (i) simplifying the tax system to ease compliance; (ii) promoting equitable taxation of passive income to eliminate arbitrage opportunities; (iii) enhancing the Philippines’ regional competitiveness; (iv) encouraging investment through favorable treatment of equity and debt transactions; and (v) supporting corporate entities in capital formation through the capital markets.
CMEPA clarifies definitions relevant to capital market transactions, including terms such as “shares of stock,” “securities,” and “passive income”, to ensure consistency in tax administration. A notable change is the standardization of the tax treatment on interest income and royalties. Previously subject to varying rates, all interest income from Philippine-sourced deposits, trust funds, and similar financial instruments are now subject to a flat 20% final withholding tax. This also applies to winnings and prizes exceeding PhP10,000.00. Additionally, interest from foreign currency deposits, formerly taxed at 15%, is now taxed at the same 20% rate to align the treatment of domestic and foreign currency instruments.
CMEPA also provides clarity on royalties, subjecting them to a 20% final tax, except those derived from books, literary works, and musical compositions, which benefit from a reduced 10% rate to support cultural and creative industries. Meanwhile, the previous exemption from tax on income earned by nonresidents under the Expanded Foreign Currency Deposit System has been removed, eliminating certain preferential treatments and leveling the playing field.
In terms of investment income, dividends are now subject to a final tax of 10%, while capital gains from the sale or other disposition of shares not traded on the stock exchange, whether involving domestic or foreign corporations, are uniformly taxed at a 15% final rate. This harmonization encourages fair competition between domestic and foreign investments.
To improve market liquidity and reduce transaction costs, the stock transaction tax on the sale or exchange of listed domestic shares has been significantly reduced from 0.6% to 0.1% of the gross selling price. This lower rate now applies not only to local stock exchange transactions but also to those conducted through foreign stock exchanges, boosting regional competitiveness and investor appeal.
Further, CMEPA reduces the documentary stamp tax (DST) on original issuances of shares of stock and debt instruments from 1% to 0.75%. This reduced DST rate also covers bonds, debentures, and similar instruments issued both locally and internationally. To further ease investment activity, the following transactions are now exempt from DST: (i) the sale, exchange, or redemption of listed shares on local or foreign stock exchanges; (ii) original issuances and redemptions of shares in mutual fund companies; and (iii) the issuance of certificates or other evidence of participation in mutual funds or unit investment trust funds.
CMEPA also provides additional incentives for retirement savings under the Personal Equity and Retirement Account framework. Employers contributing an amount equal to or greater than their employee’s contributions may claim an additional tax deduction equivalent to 50% of their actual contribution, subject to the allowable maximum of PhP100,000.00 or its foreign currency equivalent.
To ensure effective implementation, CMEPA imposes stricter compliance obligations, including timely filing and payment of capital gains taxes. These requirements aim to promote transparency, improve enforcement, and reinforce investor confidence.
Finally, the Department of Finance, in coordination with key regulatory bodies such as the Securities and Exchange Commission, the Bangko Sentral ng Pilipinas, and the Bureau of Internal Revenue, is mandated to issue the implementing rules and regulations within sixty (60) days from CMEPA’s effectivity on 01 July 2025.
CMEPA marks a landmark reform in the Philippine tax and capital market landscape. By streamlining taxation on passive income, lowering transaction and issuance costs, and reinforcing investor protections, it fosters broader participation in capital markets, enhances financial inclusion, and supports long-term economic growth.
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