New law slaps tax on savings, which will also affect time deposits and dollar accounts.
TAX ON SAVINGS – A new law called the Capital Markets Efficiency Promotion Act (CMEPA) took effect on July 1.
Quietly this month, a new law has taken effect, which is called the Capital Markets Efficiency Promotion Act (CMEPA), or the Republic Act 12214. Major banks have already started implementing the new law in terms of tax rates on interest income from deposit products.
A flat 20% final withholding tax (FWT) on interest income from deposit products will be applied. Major banks like Metropolitan Bank & Trust Co. (Metrobank), Union Bank of the Philippines (UnionBank), and Security Bank Corp. (Security Bank) confirmed that a uniform interest rate will be slapped on both peso and foreign currency accounts.
This is regardless of the term and the currency.
Exempted from the new law are the peso time deposits held for five years or more prior to the date of effectivity. As for maturities of four to less than five years, the final withholding tax would be at 5 percent; for three to less than four years, it would be at 12 percent, and for less than three years, it would be at 20 percent.
For those who are traditional savers, peso time deposits, which are over five years, are fully exempted. Shorter terms will follow the tiered system. Dollar savings accounts and other foreign currency deposits will be taxed at 15 percent.
In the new law, everything will now earn 20% less. This means that what you earn from your time deposits before will be less because of the withholding tax. This is applied to government-owned and controlled corporations (GOCCs) investment income, such as the Development Bank of the Philippines (DBP), the Social Security System (SSS), and the Government Service Insurance System (GSIS).
For the long-term deposit or investment that happened before July 1, the old rules will be applied until they reach maturity.
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