TaxPhil

📰 𝗦𝗘𝗖 𝗦𝗘𝗘𝗦 𝗜𝗡𝗖𝗥𝗘𝗔𝗦𝗘 𝗜𝗡 𝗙𝗜𝗟𝗜𝗣𝗜𝗡𝗢𝗦' 𝗥𝗘𝗧𝗜𝗥𝗘𝗠𝗘𝗡𝗧 𝗙𝗨𝗡𝗗𝗦 𝗪𝗜𝗧𝗛 𝗖𝗠𝗘𝗣𝗔

The Securities and Exchange Commission (SEC) sees more Filipinos beefing up their retirement funds under the Personal Equity and Retirement Account (PERA), thanks to the enactment of Republic Act No. 12214, or the Capital Markets Efficiency Promotion Act (CMEPA).

Among the salient provisions of the CMEPA is the grant of a 50% additional tax deduction to private employers who contribute an amount equal to or greater than their employees’ PERA contributions.

Established under Republic Act No. 9505, or the PERA Act of 2008, PERA is a voluntary retirement saving program available to the public in addition to existing retirement benefits from Social Security System, Government Service Insurance System, and employer-sponsored plans.

The program offers contributors tax benefits not available in other retirement investment products, encouraging Filipinos to save for their future.

“The CMEPA strengthens the role of PERA by offering stronger incentives for long-term savings. It encourages companies to support their employees’ retirement planning while simultaneously increasing the capital available in the financial system, stimulating the local stock market,” SEC Chairperson Francis Lim said.

Following its enactment, the SEC lauded the Marcos administration for the landmark measure that lowered the tax rate for several capital market-related transactions.

“At its core, CMEPA is designed to align the Philippine capital markets more closely with regional peers by removing long-standing barriers to investor participation,” Chairperson Lim said.

“This supports the Commission’s mission to continue introducing reforms that will increase the local market’s competitiveness. The strict implementation of provisions under CMEPA is key toward ensuring broader public participation in the capital market and fostering a deeper investment culture among Filipinos,” he added.

One of the most significant reforms under the law is the reduction of the stock transaction tax (STT) to 0.1 percent from 0.6 percent, which is expected to stimulate market activity by lowering the cost of equity investments.

Additionally, the Documentary Stamp Tax (DST) on the original issuance of shares of stock has been reduced to 0.75 percent from 1 percent of par value—an incentive for companies seeking capital through initial public offerings (IPOs) or follow-on equity listings.

Rather than imposing a new tax, the CMEPA standardizes the final withholding tax on interest income at 20 percent, simplifying compliance across investment instruments. Meanwhile, the harmonization of the capital gains tax to a flat 15 percent on shares of foreign corporations aligns the Philippine tax regime with global standards and helps attract more foreign investments.

Reporting of Service Revenue under the Ease of Paying Tax Act (EOPTA)

A client in tax advisory recently showed me the latest Letter of Authority (LOA) they received from the BIR, indicating deficiency taxes of over P600,000. Upon reviewing their books and supporting records, I discovered that their bookkeeper failed to report service revenues upon issuance of the service invoice. Instead, revenues were recorded only upon actual collection — a critical error under the current tax regime.

This practice, while common in the past, is now a major compliance issue under the Ease of Paying Tax Act (EOPTA). Before the law’s effectivity, service income was generally reported when payment was received, not when the service was rendered. However, beginning January 22, 2024, VAT is now imposed at the point of service rendition and not upon collection. The EOPTA has standardized the VAT treatment for both the sale of goods and the rendition of services, removing the previous distinction that created confusion and compliance gaps.

This case underscores the importance of hiring individuals who are not only familiar with bookkeeping but are also updated with evolving tax rules and regulations. In an era of more aggressive enforcement and digitized audits, tax compliance can no longer rely on outdated practices. Business owners, especially those of MSMEs, must invest in the right individuals otherwise, they risk incurring reputational damage and unnecessary financial strain.

[Photo by Joan Bondoc of Philstar]

Thoughts on the Veto of Taxability of Interest Income from Foreign Currency Deposits of Foreign Depositors

One of the specific provisions vetoed in the Capital Markets Efficiency Promotion Act (CMEPA) is the taxation of the interest income of foreign depositors in our local banks. It can be noted earlier that the standardization of income tax imposition for capital markets was one of the primordial objectives of the new tax law. The standardization initially proposed affected foreign depositors, which may seem reasonable in hindsight but may result in far-reaching consequences in the long-run.

As a developing country, the Philippines significantly benefits from foreign investments. Imposing taxes on these investments may discourage capital inflows and undermine the country’s efforts to sustain foreign deposits. Foreign depositors play a crucial role in enhancing liquidity within our financial system. It increases our foreign exchange reserves and ensures macroeconomic stability. By maintaining a tax-exempt status for the interest income of foreign depositors, the Philippines signals its openness to global investors and fosters a more competitive banking environment in the region. Conversely, subjecting such interest income to tax may drive these investors to our neighbors offering more favorable tax treatments, thereby weakening the country’s position as an investment destination.

With that being said, the veto was a great strategic decision that acknowledged the broad economic implications of the seemingly equitable and uniform tax reform.

[Photo by Luis Robayo of Inquirer Business]

Thoughts on the Standardized 20% Final Income Tax on Interest Income from Long-Term Deposits

The 20% standardized rate introduced by the Capital Markets Efficiency Promotion Act (CMEPA), effective July 2025, is imposed on the interest income earned from long-term deposits, not on the deposit per se. Since time immemorial, interest income from short-term deposits has been taxed at 20% FIT, while long-term deposits (those held for at least five years) have been exempt, as a rule — with some exceptions, of course (see Note 1 below). Now, the newly introduced tax law standardizes this to equalize the playing field for all Filipinos.

Many opinions have emerged in response to this move by our legislators. While there are strong arguments both for and against the law, it is unfortunate that some Filipinos failed to take the extra step to understand it more deeply. Instead, they reacted violently and quickly concluded that the new law was burdensome and anti-poor. While everyone is entitled to their opinion, opinions hold greater value when grounded in facts.

In navigating tax reforms such as this, it is essential that public discourse be guided by informed understanding rather than hasty judgment. As responsible taxpayers, let us strive to ground our opinions in facts, seek clarity where there is confusion, and engage in constructive dialogue that contributes to a fair and informed society.

Note 1:
Long-term deposits that are pre-terminated before the fifth year are subject to final income tax based on the following regressive tax schedule:

Held for at least 5 years – 0% FIT
Held for at least 4 years but less than 5 years – 5% FIT
Held for at least 3 years but less than 4 years – 12% FIT
Held for less than 3 years – 20% FIT

[Photo of Sec. Recto from BusinessWorld Online]

Revenue Regulations No. 4-2025

This regulation contains updates on de minimis benefits:
• The threshold on uniform and clothing allowance is increased from P6,000 to P7,000.
• Employee achievement awards may now be in any form. This has previously excluded cash and gift certificates.

The Philippine peso ranks sixth in the list of most counterfeited currencies based on the number of fake bank notes confiscated. https://bit.ly/3Ytjxwf

As the October 2024 LECPA approaches, here is a summary of the relevant exam rating rules provided by RA 9298.

Auditing Theory

- Types of Audit Opinions